A year and a half ago this blog asked analysts how they would value Pandora, the popular internet music-streaming company, a company with costs perpetually (as in, that’s their business model) exceeding revenues and whose management proclaimed in SEC filings that it was unsustainable at the current and planned royalty schedules for played music. (The market valued the IPO at $235M.)
For the most recent quarter, Pandora reported a loss of $14.6 million, or nine cents a share, compared to a loss of $8.2 million, or five cents a share, in the comparable period in 2011. Revenue climbed to $125.1 million, while listening hours rose 53% from a year earlier to 4.05 billion. Meanwhile content-acquisition costs rose to $76.7 million. As they predicted: the more popular the service, the more people listen, the higher the costs, and costs exceed related revenue.
Then the CEO announced he will be resigning…and investors boosted the stock 21% in after-hours trading. Confusing? Indeed. The fact is, without passage of the Internet Radio Fairness Act, which would lower royalties Pandora pays to the level paid by satellite radio, Pandora management’s own admonition of “unsustainability” prevails.
Apple also wants to get into this business. What’s the hold up? Royalty rates.