) is finally above its pre-IPO price of $16 after a few weeks of
wild gyrations in the stock that have ranged from $26 to $12. While
our valuation of
implies a near
$10 price estimate
, we look at a scenario on how to justify the current $2.8 billion
market cap - near $17 stock price - as the company fends off
competitors like local AM/FM radio stations, other Internet radio
stations and satellite radio leader Sirius XM Radio
Growth in Registered User Base
As of April 2011, Pandora had around 94 million registered users
adding a new registered user almost every second. If total
registered Pandora users continue growing at the same pace as
in 2011 Q1, it can reach 130 million by the end of the year.
Thereafter, we expect the user base to grow throughout the Trefis
forecast period, albeit at a slower rate.
Here are some drivers that could add upside to our existing user
base growth forecast:
1. Mobile Internet usage growth
But Pandora could outperform our expectations it can better
capitalize on the expected boom in mobile Internet usage growth
with its apps available on Apple's (
) iPhone, Research in Motion's (NASDAQ:RIMM) BlackBerry and
other smartphones operating on Google's (NASDAQ:GOOG) Android
2. Expanding sales force
Pandora plans to continue hiring additional personnel to build
out its sales force and ad operations team as well as expand its
business development team to establish relationships with
manufacturers of mobile, connected devices.
3. Targeting the auto-market
Pandora continues to expand its relationship with major auto
manufacturers like Ford (
(ETR:DAI) Mercedes-Benz and GM (
) to offer its services. The U.S. auto market has recovered from
its lows in 2009 and is becoming an important way for Pandora and
Sirius to reach new customers.
4. Adding content in addition to music and comedy
In May 2011, Pandora began offering comedy stations that can be
personalized to each listener's tastes. Over the long term it can
identify and exploit opportunities to offer other types of content
in addition to music and comedy.
5. International growth
Currently, Pandora offers its services only in the U.S. but
evolving licensing regulations will enable it to launch in other
international markets over time.
More than 43% upside potential for Pandora's
If Pandora is able to capitalize on the above-mentioned factors
and grow its registered user base can grow well ahead of our
estimates to reach around 500 million registered users by the end
of our forecast, then its fundamental valuation will stand at
almost $2.8 billion implying nearly 40% upside to our forecasts.
This scenario only looks at one factor of Pandora's valuation and
assumes that the economics of its business - like content
acquisition costs and ad revenue per user - remain in line with our
You can drag the trend lines in the modifiable chart above to
see the impact of the number of subscribers on Pandora's valuation
or scroll visit our site to see a dynamic breakdown for Pandora
including several modifiable drivers.
See our full analysis for Pandora here