Tech Trio: Music, Tweets, Reviews

01/31/2014 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Signs of strength and warning signs are equally evident, but getting to know strong stocks with big potential is always in season. Here are three tech companies we have our eyes on, suggests Mike Cintolo, editor of Cabot Market Letter.

Pandora Media (P) is an Internet radio service that streams unlimited music and comedy via personalized stations that will play only the stuff you want to hear.

The company, which was founded in 2000, has about 76 million active users (up 13%, year over year) and in December, it had an 8.6% radio market share, up from 7.6% in 2012. It's the biggest radio station in the US!

Pandora has made several moves that allow it to monetize its listener base more effectively, especially its latest deal to air ads in cars that offer its service.

Investors have been worrying about Apple's new iTunes Radio stealing share, so the recent news that listening hour growth was up 13% gave the stock a big boost. The stock has kicked off a renewed advance.

Twitter (TWTR) is phenomenally large for a social media company whose content is generated entirely by users, 140 characters at a time. Its market cap is $34.4 billion.

It's a young company, founded just in 2007, and its growth has exploded, as mobile devices have made contact via the Internet possible all the time. Revenue comes from advertising, and the company's success at monetizing its user base has been stellar, with triple digit revenue growth in recent quarters, including a 105% gain in the third quarter.

Since its November IPO at $26, TWTR first cooled down, and then climbed out to new highs on growing volume, hitting $75 before pulling back. We think TWTR is buyable here, but this is still a very new name, so keep new purchases small and expect volatility.

Yelp (YELP) is what happens when a company takes local business information and merges it with user reviews and photos, making a combination of the Yellow Pages (which is where the name comes from) and a social medium. Yelp, now in 44 global markets, makes most of its money by selling targeted local ads.

At the end of 2013, Yelp had 117 million monthly visitors, up 41% from the end of 2012, and total reviews posted, ballooned 42% to 47.3 million. Merchants sign up on Yelp for increased exposure (1.3 million of them, so far), and then interact with customers and searchers to improve relations and tempt visitors.

YELP made a monster run from $16 in November 2012 to $75 in October, paused for three and a half months, and is now moving to newer highs.

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