Companies are quick and proud to spew out numbers of users they have. Unfortunately, more often than not, that statistic does not correlate to success or profitability of businesses with weak models that fail to find ways of converting those users to paying customers, or monetize off them to turn a profit. Pandora is a prime example of this. Having been in the music streaming business since 2005 and enjoying the largest number of subscribers than any of its competitors, the company is constantly struggling with the concept of actually making money. Their last quarter may have been the last straw and there is a strong possibility that the much loved music service is finally looking to sell.[graphiq id=”biNKIrHQGbz” title=”Pandora” width=”600″ height=”403″ url=”https://w.graphiq.com/w/biNKIrHQGbz” link=”http://music-streaming-services.softwareinsider.com/l/66/Pandora”]
Closing the year with 81.1 million users and $1.16 billion in revenue would usually be something to celebrate, but when all’s said and done Pandora Media actually wound up with a net loss of $169.7 million. How does that happen? Between the $143 million spent on “content acquisition costs” and $112 million on sales and marketing in just one quarter combined with royalty dispute payments to greedy record labels — equating to $58 million, and other operating costs, Pandora lost $19 million in the fourth quarter alone. But at the core of it all is their inability to make money from their users. out of the 81.5 milllion users, only 3.9 pay the $5 subscription to remove ads, while the rest generate 80% of Pandora’s revenue from the ad-based, free version. Clearly that approach is not working and even as Pandora is talking about expanding beyond its service beyond United States, Australia and New Zealand, analysts are highly skeptical.
“It has lots of users but can’t grow revenue quickly enough. It is another stumbling pioneer. ” – Erik Gordon, a professor at the Ross School of Business at the University of Michigan
If the rumors are to be believed, and Pandora execs have been holding meetings with a potential buyer with the help of Morgan Stanley, the timing seems odd considering that they just spent almost $500 million in fall of 2015 purchasing Ticketfly and the remains of failed competitor Rdio. Ticketfly specifically was touted as a major evolution of Pandora.
[graphiq id=”7bizFzfzfE1″ title=”Pandora Media Inc. (P) Stock Price” width=”600″ height=”646″ url=”https://w.graphiq.com/w/7bizFzfzfE1″ link=”http://listings.findthecompany.com/l/11470696/Pandora-Media-Inc-in-Oakland-CA”]
“This is a game-changer for Pandora – and much more importantly – a game-changer for music. Over the past 10 years, we have amassed the largest, most engaged audience in streaming music history. With Ticketfly, we will thrill music lovers and lift ticket sales for artists as the most effective marketplace for connecting music makers and fans.” – Brian McAndrews, CEO, Pandora Media
It is also a time when Pandora’s evaluation sits at a low of only $1.8 billion, down from a previous $7 billion it saw just 2 years ago. But considering a staggering 60% drop in stock price since October 2015 and the aforementioned losses, the possibly sale is a sign of pure desperation. As other services like Spotify and Apple Music are rapidly growing in almost every way, Pandora keeps stumbling and struggling; McAndrews and his company may finally ready to throw in the towel.[button link=”http://www.nytimes.com/2016/02/12/business/dealbook/pandora-is-said-to-have-held-talks-about-selling-itself.html” icon=”fa-external-link” side=”left” target=”blank” color=”285b5e” textcolor=”ffffff”]Source: The New York Times[/button]
Last Updated on February 12, 2016.