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Print 30 comment(s) - last by bigdawg1988.. on Jun 21 at 2:42 PM

Some analysts think it will be a long time before Pandora turns a profit, if ever

Pandora is an internet radio company that has been around for more than ten years. The company has not been publicly traded until recently when Pandora had its IPO. Early on shares in the company soared as high as 48% from the IPO price.

The problem was that the stock then turned around in late trading and prices tumbled, yet it still ended up above its opening price. That means that people who bought early are still doing well enough on the stock, but those that bought later in the day are facing a loss in a single days trading. The reason for the about face on the stock has to do with concerns of whether or not Pandora will even be profitable.

The problem is that Pandora is growing its user base very quickly and the ads sold to support the network aren’t growing nearly as fast. This raises concerns of whether or not Pandora will be able to turn a profit in the future. 

Pandora listeners are also migrating more and more from listening via their computer to listening on a mobile device and mobile ads are worth even less than ads on computers. Pandora CEO Joseph Kennedy said, "We are tremendously focused on providing a great listener experience and that's what has gotten us to this point."

The stock's IPO price was $16 per share and it closed the day at $17.42 per share. Some analysts are calling for investors to avoid Pandora stock for now. Analyst Rick Summer from Morningstar has a target price on the stock at $6 per share. The WSJ reports that Pandora CFO Steve Cakebread thinks that its margins will improve as listener hours slow down. 

Cakebread said, "[We should] improve operating margins as our listener hours slow down." The WSJ also lists the value of Pandora at $3.1 billion fully diluted and notes that a limited float of 95 is driving shares up higher than the first day of trading.



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RE: The problem with Pandora is simple...
By Denigrate on 6/16/2011 1:22:34 PM , Rating: 4
That's one way of looking at it.

Another way of looking at it is that the only way for Pandora to grow and become profitable is to focus on customer satisfaction, and that's what they are doing.


RE: The problem with Pandora is simple...
By MrBlastman on 6/16/2011 2:03:34 PM , Rating: 2
You can have a million satisfied customers--but if all that satisfaction still means you owe money to creditors every single quarter, it is a great way to go out of business.

Once you IPO, you are _expected_ to earn money for your owners (now the public). You no longer have the leeway to just sit around and do what you see fit (though, Tesla is an example of them still begging for more money constantly), eventually it will catch up with you.

I can understand going public to raise money, but please, at least be focused on earning a return for that. I like Pandora, I think they have a great service and want them to stick around... I just don't want to see hundreds of tech companies think they can go public and the majority of them end up out of business and bankrupt again.


RE: The problem with Pandora is simple...
By Samus on 6/16/2011 3:25:24 PM , Rating: 2
Google has proven that you don't need to charge for a consumer product to turn a profit. As their customer base grows, they will become more attractive to advertisers...it sounds like they're just in limbo at the moment.


By omnicronx on 6/16/2011 4:23:01 PM , Rating: 2
quote:
Google has proven that you don't need to charge for a consumer product to turn a profit.
The exception hardly proves the rule..


RE: The problem with Pandora is simple...
By MrBlastman on 6/16/2011 4:29:54 PM , Rating: 3
There is one minor (okay, MAJOR) difference between Pandora and Google... plus the ads generate profits model.

Google doesn't pay royalties for every single search they perform to another company/agency. Pandora, on the other hand, does.

Pandora pays money to the music industry for every single listener that tunes in. The royalties are killing them and will continue to drag them down. They need to be more creative than just "placing ads."

Google, if you'll notice, has been extremely creative. They haven't just sit around with their search engine placing ads. Their Android phones have been selling in droves.

The Music industry is full of a bunch of blood-sucking leeches. Okay, vampires. They're worse than leeches. At least leeches share some sort of benefit. Vampires don't. They screw their artists over and pocket all the profits for themselves any way they can. Pandora has this huge roadblock to their success.


RE: The problem with Pandora is simple...
By crimson117 on 6/17/2011 9:59:00 AM , Rating: 2
quote:
Google, if you'll notice, has been extremely creative. They haven't just sit around with their search engine placing ads. Their Android phones have been selling in droves.


Good comment, except this bit - google is still an ad-sales based company. They aren't making a ton of money off Android phones themselves, other than ads they sell on android phones.


By vol7ron on 6/21/2011 12:35:38 PM , Rating: 2
quote:
Google, if you'll notice, has been extremely creative. They haven't just sit around with their search engine placing ads.


Right, they haven't, but I'm not sure I'd call it creative. They buy other companies out and apply them to their user-base. That's more smart than creative. The YouTubes and Maps are the creatives.


By bigdawg1988 on 6/21/2011 2:42:52 PM , Rating: 2
Well said, plus most people listen to Pandora, they don't sit there watching the ads. At least with Google you have the sponsored ads at the top of your search engine.
I like Pandora, although I don't like it enough to pay for it, but I don't see them making money without commercials, and who would want to listen to that?
They ought to sell the technology to someone else or combine it with a standard pay model like Rhapsody.


By RivuxGamma on 6/20/2011 12:09:45 PM , Rating: 2
Just because there's no money transferred doesn't mean that they don't take something in exchange. It's a pretty ingenious barter system.


RE: The problem with Pandora is simple...
By omnicronx on 6/16/2011 4:19:04 PM , Rating: 2
quote:
Once you IPO, you are _expected_ to earn money for your owners (now the public).
I disagree, you are very lucky if you find an IPO that gives you an immidiate or even close term return because they are usually being valued on market potential, not their current state. Many IPO's never turn profitable, and even most that do take years to do so.. Not everyone is Google..

Pandora made a whopping 138M in revenues but were actually 1.8M in the red last year. Do you really think anyone can expect instant returns when the IPO is being valued at 2.6B?

Not to mention most IPO's form when companies are seeking to expand and/or need capital in order to do so..

This is clearly a long term investment, and anyone getting involved without realizing this is a fool..


By MrBlastman on 6/16/2011 4:45:15 PM , Rating: 3
quote:
This is clearly a long term investment, and anyone getting involved without realizing this is a fool..


Long-term... Lets see. Long term implies they will survive long enough to give a return on capital. That means they have to stay in business.

Anyone who makes an "investment" on a company that cannot make any money and has stated their goal is not to focus on making money anytime soon is a fool.

Anyone who places a "bet" on a company that does this--well, they're taking a gamble then. Pulling the lever to see what they get. If they go in with this mentality, then they aren't a fool.

When you make an investment, you put your money in something that will make you a return--at a value, typically a discount to what it is worth. Pandora did not IPO at a discount. It was sold at an extreme premium. A HUGE premium. It has a market cap today of 2.8 billion, that is _still_ 20 times revenues. TWENTY TIMES. Most borderline insane individuals might buy into something that is selling at eight times. It sold on the primary at TWENTY FOUR times. On the secondary at open, it was THIRTY times.

It sold on the primary for 16/share, opened on the secondary at 20, went as high as 26 and now, as of today, closed at 13.26. There are plenty of people that are looking at it the same way I am.

If you invest, you invest in value and a discount. Pandora is extremely overpriced. I want them to make money, I really do, I just think their CEO is going to need to change his attitude if he wants to keep from being ousted by his new public that owns his company.


By RamarC on 6/16/2011 4:24:48 PM , Rating: 2
most every customer is satisfied (or has nothing to complain about) when something's free. but i stopped listening to pandora when the ads started popping up more frequently.

pandora's either going to have to severely cut the free hours per month to reduce the listening fees or increase the number of ads to increase the revenue. we'll see how many folks are still satisfied when that happens.


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