“They just can’t sell advertising that fast” is one of the key quotes in a Bloomberg-Businessweek article examining the rapid growth of smartphone users of Pandora – so fast that monetization of the growth is elusive. And that quote is actually from an analyst who has a “buy” rating on the stock.
The article blames the lack of advertiser spending on mobile streaming for the drop in Pandora Media’s stock price from its June IPO.
Here’s a number to write down. Pandora is projected to grow active users by 21% annually to reach 159 million active users worldwide by 2021. [RBR-TVBR note: Will that prove true, or is it pie in the sky like the analysts’ projections for satellite radio a few years back?]
Managing growth is clearly a challenge for the streaming audio company. The article quotes CFO Steve Cakebread saying “It’s really tough to grow our sales organization 125% year-over-year.” Pandora has been adding local advertising sales offices, but Bloomberg-Businessweek notes that it doesn’t have a single salesperson yet in such major cities as Atlanta and Miami.
And while growth is a challenge, the article also notes that Pandora faces increasing competition from such services as Spotify, Last.fm and Clear Channel’s iHeartRadio.
RBR-TVBR observation: The article makes scant mention of music licensing fees, which is the elephant in the room for any discussion of Pandora’s financial picture. While Pandora’s ad sales may not be able to keep up with user growth, it still has to pay the record labels for every song that the users listen to. Several analysts expect Pandora to turn cash flow positive yet this year, though, so we wait to see if that happens.
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