Pandora Rides the Smartphone Boom Though Stock is a Tad Pricey

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Pandora's ( P ) user base is growing at a blistering speed. The total number of registered users increased from 22 million in 2008 to 82 million in 2010 and is likely to reach 130 million by the end of 2011 according to our forecasts. The expansion of the smartphone market is the main driver for this growth. Pandora is also expanding its presence in the  automobile market, which is dominated by satellite radio leader SiriusXM ( SIRI ). And now it faces greater competition from Spotify which recently launched its music service in the U.S. via Facebook.

While we estimate Pandora's total registered users will increase from 130 million in 2011 to around 337 million by the end of our forecast period, Trefis members project an increase from to 377 million during the same period. The member estimates imply upside of almost 20% to the our estimate for Pandora's stock.

We currently have a Trefis price estimate of $10 for Pandora's stock , which is about 30% below the current market price. To see some of our key drivers for Pandora as well as upside/ downside scenarios, see our recent note Upside & Downside Scenarios for Pandora .


The Proliferation of Smartphones Drive Growth

According to market research firm Gartner, smartphones accounted for 24% of overall sales in the first quarter of 2011, an increase of 85% year-on-year. The firm predicts a competitive mid-tier smartphone market will drive smartphones into mass adoption. Pandora is one of the most popular music apps available for the iPhone, Blackberry, Android, Windows Mobile and Palm, and as the smartphone boom continues, we expect it to expand its mobile subscriber base.

Sirius & Spotify are Legitimate Concerns

Pandora joined hands with electronics manufacturer Pioneer last year to provide Internet radio enabled music systems for cars. The device detects Pandora settings when a phone is connected with the system and will be able to play Internet radio. Pandora continues to expand its relationship with major auto manufacturers like Ford ( F ), Daimler's (ETR:DAI) Mercedes-Benz and GM ( GM ) to offer its services. While the auto market is definitely showing a recovery, Pandora faces competition from SiriusXM which has a wider coverage and more automobile manufacturers as clients.

Spotify, which promises to make music listening experience "more social" through its partnership with Facebook, is also a considerable threat to Pandora. With Facebook's user base of 750 million, Spotify has a huge market to capture and will compete with Pandora for music listener hours as well as user growth. (See Spotify Throws a Wrench in Pandora's Growth Plans)

See our complete analysis for Pandora



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: F , GM , P , SIRI

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