Can Pandora Keep It Up?

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Pandora Media was one of last week's biggest winners, soaring 23% as investors rallied behind the streaming music leader. 

Pandora rose after introducing its new CEO and holding up better than some had feared during Apple's iPhone event. 

The CEO? Pandora announced that Brian McAndrews -- the former aQuantive chief who grew the online advertising specialist to the point where Microsoft was willing to pay $6 billion for it -- would be its new helmsman.

The market liked the move.  

There is nothing more important at Pandora right now than increasing its online advertising. It's doing a good job on that front. Ad revenue climbed 44% in its latest quarter, even though it only served 18% more listener hours. The vast majority of its more than 70 million active users are freeloaders, and online advertising is the only way that Pandora's going to make enough money to cover its growing music royalties, bandwidth costs, and operating overhead. 

Sirius XM Radio has been profitable for years as a premium platform. Pandora has tried to set itself up that way, but capping free usage is a strategy that's also been abandoned twice.

It's just as well. Microsoft's Xbox Music is now being ported for iOS and Android devices. Apple's iTunes Radio -- a free ad-based service that it openly describes as similar to Pandora -- rolls out this week. Pandora needs to milk more ad revenue out of every hour it streams without alienating users, and that requires someone from a digital marketing background. McAndrews is a good fit on that front.

As for iTunes Radio, Apple didn't add any more color to the service than it did earlier this year. It will become available when the new iOS 7 mobile operating system rolls out on Wednesday. However, by limiting its access to iOS 7 devices this week, it won't be a significant challenger to Pandora, which is consumed largely on Android devices since that's the leading mobile operating system these days.

Apple may make a dent in Pandora's model eventually, but the market seems to believe that the coast is clear for now. If anything, the launch of iTunes Radio may educate iOS users on the merit of streaming music on their devices, and that may actually help more than hurt Pandora. 

Yes, these are interesting times for Pandora, and that's why the shares hit a new 52-week high on Thursday despite the challenge from tech heavies and its inability to follow Sirius XM Radio and Spotify into premium listening.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media. It owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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