{"id":21850,"date":"2011-06-21T09:00:16","date_gmt":"2011-06-21T13:00:16","guid":{"rendered":"http:\/\/www.investmentu.com\/?p=20896"},"modified":"2011-06-21T09:00:16","modified_gmt":"2011-06-21T13:00:16","slug":"pandora-now-trades-on-hope","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/06\/21\/pandora-now-trades-on-hope\/","title":{"rendered":"Pandora Now Trades On Hope"},"content":{"rendered":"

Pandora Now Trades On Hope<\/a><\/p>\n

by Ryan Cole<\/a>, Investment U<\/em> Research
\nTuesday, June 21, 2011<\/p>\n

After Pandora’s strong opening IPO<\/a>, the company quickly came back to earth. As of this writing,\u00a0 the stock has dropped well below its IPO price of $16.<\/p>\n

Investors are wary of the company’s long-term prospects. Right now, Pandora<\/strong> (NYSE: P<\/a>) pays more in royalties on every song it plays than it brings in with advertising revenue. The more songs users listen to, the greater the loss.<\/p>\n

Take a look – last quarter brought in $51 million in sales, it’s best performance ever – more than twice what it made a year ago ($22 million). The company also lost $6.8 million on those sales – more than twice what it lost a year ago ($3 million).<\/p>\n

All told, Pandora has lost $92.1 million since its founding and has never made money, with no end in sight to that trend. Pandora’s own filing says there’s no possibility of profits before 2013 at the earliest – and no reason to think that 2013 will be any better than this year.<\/p>\n

In fact, the odds are stacked against it…<\/p>\n

Declining Growth, Shifting Listening and Big Competition<\/strong><\/p>\n

More and more of Pandora’s music is being listened to on mobile devices<\/a> – and, while the royalties paid remain the same, ad revenue dips for mobile listening.<\/p>\n

Those royalties, meanwhile, can’t be renegotiated until 2015 – and at that point, there’s little reason to believe music companies will lower their fees.<\/p>\n

Worse – Pandora’s sales growth is slowing, thanks to the aforementioned shift to listening on smartphones and tablets.<\/p>\n