Pandora May Not Be Dead After All

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Pandora Media (NYS: P) had to claw its way back into the double digits. Is reclaiming its IPO price of $16 the next step in validating its business model?

Raymond James analyst Aaron Kessler raised his rating on the music-discovery pioneer yesterday. His price target of $14, while still well short of last June's $16 debut, represents a healthy advance from where the stock is trading today.

Moving from a "market perform" to an "outperform" rating comes at a time when it seems as if the competition is getting stronger.

  • Since launching its beefed-up streaming app late last year, Clear Channel's iHeartRadio has surpassed 10 million registered users.
  • Spotify has been a critic's fave since introducing its on-demand streaming service last summer, but now it's rolling out a free Pandora-like music-discovery app for mobile devices.
  • Sirius XM Radio (NAS: SIRI) isn't growing as quickly as the dedicated online specialist, but the satellite-radio giant has been increasing the visibility of its streaming service lately.

However, Kessler is confident about Pandora's near-term potential after surveying hundreds of Internet users to reveal that Pandora is the best-positioned company when it comes to digital music outside Apple (NAS: AAPL) , with its iTunes juggernaut.

Kessler's survey shows that of the survey's respondents, 64% are active Pandora users. Only 4% of them expect to stream less Pandora in the coming year. A heartier 38% expect to boost their Pandora consumption, and the rest see no change in the amount of time they're spending on Pandora.

The problem with these surveys, of course, is that participants don't really know what the future will bring when it comes to digital music. Google (NAS: GOOG) and Amazon.com (NAS: AMZN) have been aggressive in rolling out their cloud-based services. What if Spotify puts out a superior product? What if Sirius XM makes its streaming service more affordable to non-subscribers?

I agree with Kessler's bullishness. Pandora has gone largely unappreciated by investors. It did come to market at a stiff valuation, but it has done nothing but grow spectacularly and occasionally profitably. I just don't know whether asking 422 music fans what they'll be doing a year from now is investable insight.

Things change pretty quickly in this space, and investors need to make sure that they don't miss a beat.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.

At the time this article was published The Motley Fool owns shares of Amazon.com, Google, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Google, Amazon.com, and Apple and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns no shares in any of the stocks in this story and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has adisclosure policy.

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