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Pandora Listener Data Decoded – Should You Buy or Sell P Stock?

Pandora Media (P) broadcast its latest listener metrics Thursday, and the streaming radio company sold off as a result of slower growth and a drop in the total number of music hours.

pandora-stock-p-stockBut are big challenges for Pandora stock emerging in these numbers? Or is the market reading this data incorrectly?

For starters, I think it’s worth noting that investors who are sitting on P stock after its 200% run in the past year should consider taking a bit of cash off the table regardless. Whenever a stock runs that far, it’s prudent to trim back to both protect your profits and to rebalance your portfolio.

But for new money or for those who want to let their investment ride, here’s a detailed look at Pandora listener metrics and what’s in store for the streaming radio player.

Pandora Stock Outlook

The good news is that streaming growth is fast and furious. Last year, U.S. song streaming was up 32% and total on-demand audio streams were up more than double year-over-year according to Nielsen numbers.

The bad news is that while Pandora is one of the leaders in streaming audio, it certainly isn’t alone. Apple (AAPL) launched iTunes Radio last year, and competitor Spotify is growing fast and looking for an IPO soon. Then there is Google Play All Access from (of course) Google (GOOG) that charges $9.99 for streaming audio — but could have a free component in the near future.

Oh yeah, and don’t forget Amazon (AMZN) which is always trying to get in on stuff like this.

So the big question for investors is whether Pandora can keep getting its fair share of this fast-growing market and maintain dominance.

Here’s the good news: The latest details show February listener hours for Pandora hit 1.51 billion, up 9% year-over-year but down a bit from 1.58 billion in January. While the growth compared with February 2013 isn’t thrilling, it’s important to note that February is a short month, so the January-to-February dip isn’t as big of a concern as some are making it out to be.

Furthermore, the total U.S. radio share of Pandora in February was 8.91%, up from 8.25% at the same time last year and proof the company is tightening its grip, not relaxing it.

On the flip side, it’s increasingly apparent that the rate of growth is flattening out.

February’s growth rate was almost 9% over the previous year, January’s growth rate was 13% as was December’s rate, and November and October data showed a growth rate of 18%.

Not a good trend.

Equally troubling is that Pandora will discontinue these monthly audience metric reports, announcing this week that the final monthly release will be in June for May 2014 numbers. Its reasoning? Pandora says advertisers (and I guess investors) have plenty of other tools out there to figure out what’s what regarding its streaming audience.

Any time a company stops releasing important info like this, it can only be taken as a warning sign that it doesn’t want to share unfavorable numbers. Remember when Walmart (WMT) said it would stop reporting monthly same-store sales data? That was in the middle of nine consecutive quarters of same-store sales declines.

You read that right — not nine months, but nine quarters … or more than two years.

You have to wonder what Pandora has to hide.

Pandora Stock Is a Hold — But Not a Buy

There’s a chance that Pandora stock could keep running after its 200% gain in the past year. But it better look over its shoulder.

For instance, Spotify has just acquired The Echo Nest, a music intelligence and recommendation service used by Rhapsody and others. Plus, it is raising hundreds of millions in capital already and could get even more in an IPO. Spotify has about 24 million active users, with about a quarter of them paying monthly subscription fees, and could be worth as much as $8 billion, according to analysts — roughly the same as Pandora.

Streaming radio is certainly the way of the future, and Pandora is undoubtedly one of the biggest players in the space. If you have a a good foothold in this stock, I wouldn’t sell out altogether since there is some potential for big upside in the long-term … but I would definitely advocate trimming back if you’re overweight.

And if you don’t own Pandora stock? I wouldn’t buy now at these prices unless you’re a very aggressive trader willing to take a big risk.

Because with Spotify coming on strong and Pandora limiting visibility on user metrics, it could get rocky later in 2014 for P stock.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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