With the technological developments in the current globalized world, the media has been the greatest beneficiary. The internet has created a platform for individuals as well as companies to communicate hence enhancing the effective distribution of information. As a result, a number of media companies have embraced this change and they are utilizing the internet platform to their advantage. Nowadays, people can stream live to watch movies, read electronic newspapers and books, as well as listen to their favorite music or radio stations through the internet. Pandora Media Inc is one of the many media companies that provide such services online. This paper seeks to evaluate the company’s performance guided by a SWOT analysis to determine the benefits or threats of purchasing its stock.
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The company’s background
The company began its operation after its inception in January 2000 (Stynes, 2013). Within the first month, the company had already overwhelmingly attracted many users. To be precise, by January 31, 2012, the company had approximately 125 million-registered users (Stynes, 2013). Pandora provides internet radio services to millions of users today although the company’s services are limited to a few countries. Pandora radio services are only available in the United States, Australia, and New Zealand (Stynes, 2013). Through its Music Genome Project, the company allows listeners to choose their preferred music and play content that is suitable for them without being charged. A user is allowed to create up to 100 customized stations and through that, they can easily access unlimited hours of listening to free music through the internet.
The company has a number of platforms that the consumers can access its services and they include the Pandora mobile device application as well as applications for android phones, iPhones, and other smart phones (Bloomberg business week, 2013). The users can access the company’s services through these main distribution channels. To enhance the accessibility and distribution of its services, the company has collaborated with several electronic companies including the internationally renowned Samsung and Sony companies (Market watch, 2013). These companies are third-party distribution partners and they have enhanced the distribution of Pandora’s services significantly. With such a variety of free services and access to its services, one would wonder how the company generates its revenue to support its financial needs. Counting on its popularity, the company has won the confidence of several multinationals. Therefore, such companies seek to use Pandora’s popularity and presence in the market to reach out to their targets.
The primary source of revenue for Pandora is through advertising. As of January 31, 2013, the company’s revenue through advertising accounted for 87% of its total revenue (Market watch, 2013). Having been founded in the year 2000, which is 13 years ago, the company’s headquarter is still in Oakland, California (Bloomberg business week, 2013). The online interface is very effective since it gives the user an option to listen and buy songs or even albums through a number of retailers online. To cover their costs, the company has two subscription plans a free subscription and a fee-based plan (Reuters, 2013). The free subscription plan is chiefly maintained by advertising while the fee-based plan has no advertisements but the revenue is generated through users’ contributions (Reuters, 2013).
Strengths of the company
One of the unique strong points of Pandora media is its accessibility. The company has created more than one distribution channel and in addition to computers, Pandora can now be accessed through smartphones, stand-alone players and soon it might be easy to access the radio services in vehicles (Bloomberg business week, 2013). The other strength that the company enjoys is the ability for consumers to listen to their preferred music. Unlike the proverbial radio stations where listeners do not have control over what they hear, the Pandora online radio services allow the consumers to choose and control what they hear. Pandora has a publicity advantage, as the company has become a generic trademark especially in the United States of America. Due to its popularity, the company attracts many advertisement contracts and many multinationals seek to publicize their products through the company’s distribution platforms.
Weakness of the company
The company offers free services up to 40 hours, which means there is no financial gain while those hours last. Offering services without gaining financially is detrimental to any business because for a company to provide any service there must be expenses incurred. Another weakness on the part of the company is the fact that it does not advertise. Pandora does not advertise itself and this is an opportunity lost in any business. This makes the company vulnerable to its competitors. When a business does not advertise, it may be forgotten or be overtaken by a new entrant in the market. Advertising helps to keep a brand in the consumer’s mind-rejuvenating its demand time after time. The company also loses the opportunities in exploiting other markets around the globe that can enhance the generation of revenue. Being limited to the United States, Australia, and New Zealand, Pandora cannot take advantage of other markets around the globe. All these weaknesses notwithstanding, the high cost of paying royalties to artists has had a major impact on Pandora’s financial strength.
Opportunities for growth
The company has exploited other opportunities such as collaborating with other electronics companies who install the company’s applications on their products. Nonetheless, Pandora has not been tried on vehicles and we are still expecting such a development in the future. The entertainment industry is growing bigger every day and more options are being offered in the market. With such growth in the music industry, Pandora can be very effective in vehicles. New emerging music bands are coming up every day and such bands need to be given an audience and be assisted to build a fan base. Pandora creates room for new artists as well as the old ones by offering an interface between the fans and their preferred music products.
Threats faced by the company
The company faces stiff competition from other similar companies such as Grooveshark, last Fm among other online streaming commercial radios (Bloomberg business week, 2013). As the market grows, it creates opportunities for new entrants hence increasing the level of competition. This leads to market saturation as many companies offer homogeneous services.
Evaluation of the company’s performance
Going by the essentials of corporate performance analysis, a company is said to be doing well when its future financial prospects are intact. A company that is vulnerable to financial problems such as bankruptcy cannot be said to be doing very well. Pandora for instance has no financial issues that are detrimental enough to cause the company to get to a state of bankruptcy. The company’s stock value keeps getting higher every year, which is a sign of great financial improvement. The company’s status has also changed and rose to overweight from being an equal weight (Reuters, 2013). This is a clear indication of how well the company is doing in the already saturated market. As of July this year, the company has also registered an increased number of listeners. The increased user base is an indication that the company is growing and its prospects of future financial dominance are high.
The signing of the ten-year lease of the 125 Park Avenue story building is a clear indication of just how serious the company is concerning expansion. This gives investors confidence in the company since it can afford such a huge asset-base by renting space. During the month of July 2013 alone, the company was able to collect 1.28 billion from its ‘listener hour’ services, which is an increase from 1.12 billion from the same period last year (New York Times, 2013). That represents an overwhelming 14 percent increase from the previous year (New York Times, 2013). The percentage of shares of the total radio listeners for Pandora also rose to 7.08% from 6.13% share in the previous year (New York Times, 2013). That is not the only increase as far as Pandora media Inc is concerned. The company’s active online listeners also increased quite significantly. In July 2012, the company had 54.9 million active listeners. That is an increase of about 30% compared to this year’s 71.2 million active online listeners (New York Times, 2013).
Considering the above development in the company’s user base, it is clear that the company’s ability to create money is very viable. A company that has the prospects of creating or making profits can be said to be doing well in the market. This positive future prospect is very fundamental for investors since it indicates the financial viability of a company. Any investor seeking to risk his or her investments in terms of finances or assets will keenly consider his or her chances to gain in the end. Pandora has shown and proved its viability through its constant growth and increase in value. The company has very high and positive prospects to create cash profits considering its constant growth in user base as well as its progressive revenue collection as discussed earlier. A rise in revenue by 14 percent in a grossly saturated market is quite a milestone.
The online radio business is very crowded with many service providers entering the market. Every company is trying to woe a constant number of users but Pandora is continuously increasing its number of listeners and profits at the same time. This means the company must be doing very well in their financial gains as well as their services. A company is also evaluated through its financial activities in terms of how well it spends on its operating costs and how much the company invests in its future growth. Pandora has been lately investing in a significant space lease investment as discussed earlier in this paper. The multibillion-lease plan that will be valid for the next ten years is a clear indication of the company’s financial worth.
In the light of the above, the company’s assets will have increased significantly indicating its financial strength and consequently proving its financial worth. Evaluating a company’s financial worth involves scrutinizing the company’s assets to examine how much value does the company owns as well as its liabilities. An investor will always look at the assets that the company carries and the liabilities that the company owes to other parties. Costs and expenses are very crucial aspects for investors. They include expenses on equipment, salaries, and raw materials among other aspects of its service delivery. Those few expenditures have a very great impact on a company’s profitability and they form the basis of the investors’ decision-making process. In the case of Pandora, the fact that growth is being achieved progressively and more revenues collected in each financial year show that the company is very suitable for investors. Buying stocks from this company cannot be a bad investment idea considering the company is showing remarkable growth and financial viability.
Pandora Media Inc is a worthwhile investment for any investor interested in purchasing its shares in the stock market. There is enough evidence to prove this assumption one of the major assumptions being its growing user-base. In the online business, a big audience means more profit. Popularity in this industry attracts other aspects of revenue collection like the advertisements as discussed earlier. With a popular company such as Pandora, it is easy to get other multinationals to advertise on your platform for a fee hence generating revenue. This kind of popularity has made Pandora media Inc one of the most admired companies especially in the USA, hence attracting a great number of users in services, the free subscription, and the fee-based subscription.
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Purchasing Pandora’s stock is a financially viable investment that is worth the trouble. Looking at all financial indicators and evaluating the company’s financial suitability it is clear that the company has a better future compared to its competitors in the industry. The company has enough assets and financial stability that can guarantee investors’ confidence for the next ten years especially with the recent investment in the leased space. Its customer base is also a contributing factor that the investors can trust and use to justify their confidence. This shows that the company is capable of remaining in operation for quite a long time, which is a very positive sign to the investors who look for long-term gains from their investments.
This paper evaluates the viability of Pandora media Inc through scrutiny of its financial performance. The paper gives a comprehensive comparison between the company’s performance this year and its performance in the same periods last year. To evaluate its viability in terms of attracting investors, the paper has performed a SWOT analysis to identify the company’s strengths, weaknesses, opportunities, and threats. After the analysis, the paper gives a very comprehensive evaluation of the company’s performance in terms of profitability, future prospects, competitiveness, and services provided. The paper concludes with recommendations giving reasons why investors should feel safe to invest in the company by purchasing its shares on the stock market. The paper offers valid proof that investing in the company would be a prudent investment. In light of the evaluation of the Pandora Company, it suffices to assume that the company is well-grounded in terms of financial security and asset value.
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Reuters: Pandora Media Inc, (2013). Web.
Stynes, Y. (2013). Pandora Reports Increase in Listeners in July. Web.