Peeking Inside Pandora Media Inc (P)’s Music Box: Sirius XM Radio Inc (SIRI), Apple Inc. (AAPL)

Page 1 of 2

Pandora Media Inc (NYSE:P) has had a nasty ride since its IPO in July 2011. The online radio company’s stock has gone nowhere over the past two years, as it continues grow revenue but fails to post a profit – a sign that costs may be spiraling out of control. Is Pandora about to doom investors, just as its namesake destroyed the world with her mystical box, or should investors save some hope – just as Pandora did, despite her grievous error?

Yet another unprofitable fourth quarter

For the fourth quarter of 2013, Pandora Media Inc (NYSE:P) posted a loss of 9 cents per share, or $14.6 million, down from a loss of 5 cents per share, or $8.18 million, it reported in the prior year quarter. Accounting for one-time charges and benefits, the company lost an adjusted 4 cents per share, beating the Thomson Reuters’ consensus estimate by a cent.

Pandora Media Inc (NYSE:P)Revenue at the company climbed 54% to $125.1 million, beating the consensus estimate of $122.8 million.

Royalties are a royal pain

Pandora’s obvious problem is its continued lack of profitability. Although ad sales – its main source of revenue – rose 51% to $109 million, royalty payments made to record companies and artists rose 59% to $77 million.

The fact that these costs are outpacing revenue growth is troubling, since co-founder Tim Westergren reported that Pandora’s per-track royalty costs have risen 25% over the past three years, with a 9% jump in 2013 alone. These costs are expected to rise an additional 16% over the next two years.

In addition to rising royalty costs, Pandora’s SG&A (sales, general & administrative) expenses have been rising, due to a rapid expansion of its sales team workforce, which it needs to promote and maintain its ad revenue.

A steadily growing user base in a fragmented market

Pandora Media Inc (NYSE:P) finished last month with 67.7 million users – claiming approximately 8.5% of the domestic Internet radio market.That seemingly small market share makes Pandora the largest Internet radio company in the U.S. – a testament to the fragmented state of the market, which includes rivals Spotify, Soundcloud and Vevo.

However, Google (NASDAQ:GOOG)recently announced plans to launch streaming music on its YouTube platform. With over 800 billion unique monthly users, YouTube’s music platform could flatten the entire landscape of Internet radio. With $48 billion in cash at its disposal, Google isn’t worrying about royalties – rather, the company’s enormous size could give it leverage against record companies to gain pricing power and better rates.

To make matters worse, Apple Inc. (NASDAQ:AAPL) is also rolling out its own streaming music platform. However, Apple demanded lower royalty rates than Pandora, which has resulted in a temporary stalemate with record labels.

Therefore, Pandora’s dominance of the market may be short lived.

Listener growth is a double edged sword…

Pandora’s total user base is still growing, but at a slower rate than before, with 47% growth in the previous quarter and 38% growth at the end of January.

Yet a slowdown in listener growth may actually be a blessing for Pandora Media Inc (NYSE:P).

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!