The Oprah Effect

On January 3rd, I wrote an article titled “Pandora Is A Fundamentally Flawed Stock.” Between that date and yesterday, the stock fell 31.5%. The specifics of the one-month decline were not something I could foresee–I have no idea when the market participants will correctly reflect the true value of a security–but I could predict that Pandora shareholders faced two long-term problems. Pandora shareholders are perpetually suffering from dilution, as the company makes secondary offerings to receive cash to keep operations ongoing. Also, there is significant stock-based compensation for Pandora executives.

While this is a significant demerit, it can be overcome if the business model is strong enough. I have expressed doubts about Pandora because of the high cost structure of playing music. The cost of the raw material is $0.0017 per song before taking into account any of ongoing costs of hosting and streaming plus paying employees to … Read the rest of this article!