Pandora Media had been approaching cash flow break-even in its most recent fiscal year, but its loss from operations got bigger instead of smaller in the first quarter (February-April) of its new fiscal year. The quarterly update came in the latest revision of Pandora’s pending IPO.
Lots of blank spaces remain in the IPO prospectus, so there’s still no estimated offering price range or the number of shares to be sold to the public in the $100 million stock sale. At this point, no tentative date has been set for the IPO.
What we did learn from the latest update is that while revenues increased a lot in the fiscal Q1, so did expenses.
Total revenues increased 137% to $51 million. Within that, advertising revenues grew 137% to $43.7 million and subscriptions increased 134% to $7.4 million.
Meanwhile, total costs increased in similar fashion, up 130% to $56.2 million. The biggest outlay, of course, was “content acquisition” – in other words, music royalties – which gained 131% to $29.2 million. The second biggest expense line was marketing and sales, up 139% to just shy of $13 million.
So, as Pandora waits to sell its stock to the public, its loss from operations in fiscal Q1 increased by 82% to $5.2 million. All in, its net loss increased 125% to $6.8 million.
RBR-TVBR observation: Following the recent success of LinkedIn’s IPO and a generally hot market for Internet stocks, we’re expecting Wall Street investors to welcome Pandora Media with open arms. But once the euphoria wears off, is this music streaming “radio” service really a good business?
Well worth a read is a commentary by Jim Edwards on BNet. He’s a former AdWeek Managing Editor. Edwards questions whether the business model for Pandora is really a “mutual suicide pact” between its music costs and its revenues.
“Pandora is locked into a Catch-22: The more users it has, the more advertising it can sell against those pairs of ears. But at the same time, the more ears that are listening and the longer they listen, the more songs they hear and the more Pandora must pay out in music license fees,” Edwards wrote.