Profitability still eluding Pandora as the company announces its Q2 earnings

 

Pandora’s shares are taking a beating in after-hours tradings, down over 10% since the company announced its Q2 earnings where it once again failed to become profitable. 

Whilst it beat revenue expectations with $218.9 million in revenues, a 43% increase over 2013, it lost $11.7 million which equates to 6 cents per share. 

This actually represents a worse result than the 4 cents per share loss it had posted last year and falls short of analyst expectations, who had predicted the company would finally turn the tide and post flat growth or a profit of up to 3 cents per share. 

The company’s user-related numbers are good, with over 5 billion listener hours for Q2 and 76 million active users in June. Content-related costs also declined by 11.7% to just over 50% of its revenue. The company announced it has paid over 1 billion dollars in royalties to date, the same figure that YouTube had announced paying out earlier this year.

As far as advertising is concerned Pandora’s push towards local advertising is a big winner with revenues of $35 million which represent a 144% growth year-over-year. Advertising revenue overall was up 39% from last year. 

The bottom line is that the company is doing solid work, but it has a couple of problems. First of all its listener numbers are not booming any more, suggesting that there may be a limited scope for further growth in the US. Second, the company needs to show the market that with content acquisition costs going down it is able to post even a modest profit. 

The 10% drop of the company’s shares after-hours could be the usual knee-jerk reaction of investors when a company under performs, but it could also show that investors are getting tired of waiting for a profitability that seems so close but never actually materialises. 

(Andrea Leonelli)