Since coming public in mid-June, the shares of Pandora (NYSE: P ) have been a
rocky ride for investors. After reaching a high of $26, they now are trading at
about $10.50. So what's the problem? Actually, it's not the service. For the
most part, Pandora has a great offering (Disclosure: I love it as well). But
when it comes to investing, good service is not enough. It's also important to
look at the barriers to entry. Unfortunately, in the case of the online music
industry, there are many worthy competitors trying to get a piece of the market.
The latest entrant came just this week: Facebook. The company is partnering with
other music operators like Spotify, MOG, iHeartRadio, Slacker and Rdio. Their
services will be integrated on the Facebook platform and allow users to share
playlists and music titles. They also will appear on a user's Timeline
(Facebooks new profile page). This should provide an overall boost to the online
music industry. However, Facebook Music also will put pressure on Pandora. After
all, Facebook is looking to be the ultimate platform for music (as well as other
media, such as movies and television content). And it certainly will be a great
way to get a chunk of some high-margin revenues. Facebook's music efforts also
will put pressure on other top tech giants like Amazon (NASDAQ: AMZN ) and Apple
(NASDAQ: AAPL ), who want to be the dominant player for entertainment platforms.
Thus, for a relatively small company, Pandora certainly has a lot of challenges
to deal with. It is no surprise that its stock price can't seem to find much
support. Tom Taulli is the author of "All About Short Selling" and "All
About Commodities." You can also find him at Twitter account @ttaulli. He does
not own a position in any of the stocks named here.
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