News - 24/10/2014

Pandora’s Q3 earnings: revenues up, listening hours down

Pandora’s Q3 earnings: revenues up, listening hours down


Pandora announced its Q3 results last night, showing that it is now very, very close to being profitable. Pandora reduced its net losses from $4.1 to $2 million, posting record revenues of $239 million.

This represents a 40% increase on last year’s figures and, in 2014, the company’s revenues rose 49% of 2013. Overall an admirable performance for any company.

So what are the company’s shares in a free-fall - down by over 9% currently - in after-hours trading? First of all the company has seen a significant slowdown in the growth of the number of unique listeners, up only 100k over last year’s result. Second the company has seen a 1% decline in listening hours, when compared to Q2 of this year, though they are still up 25% compared to last year.

As the company also remarked during the earnings call, Pandora couldn't expect to keep growing at the same rate as it had in previous years. On the one side you have a growing number of competitors, from Slacker to iTunes Radio, to iHeart Radio and Google Play Music’s Songza integration. On the other side Pandora may not have that much of a margin for growth in the United States given its already immense user base unless it can really conquer the car space.

The company has been pretty conservative in its international expansion so far, and that was perhaps a good move as it is leading it towards a much-awaited profitability. But a service of this size also has to be able to see opportunity afforded by a broader international rollout.

As far as the US is concerned, there’s a big question mark in Pandora’s future since the statutory royalties set by the tribunals are set to expire in 2015. Since royalties are the company’s main expense the rates set for 2016 to 2020 will be key in deciding whether the company can become and stay profitable over the next couple of years.

Publishers could also be a cause for concern as Sony ATV for example threatened to leave ASCAP and BMI to strike its own deals with services like Pandora. This could lead to a considerable increase in publishing royalties as Pandora cannot operate without Sony ATV’s catalogue.

Finally, Pandora is facing potential lawsuits over the issue of pre-1972 recordings, the service is not paying a penny towards those master recordings and following The Turtle’s first success in a suit against Sirius XM, Pandora would be the next logical target and could be liable for millions of dollars in back-payments.


(Andrea Leonelli)

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