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Pandora posts loss as revenue increases 117%

August 25, 2011 |  7:01 pm

Online radio company Pandora Media Inc., whose stock price has been on a wild ride since its initial public offering in June, posted fiscal second-quarter earnings that beat Wall Street's relatively low expectations and drove its beleaguered shares up 3%.

Pandora Logo The Oakland firm reported a 117% increase in revenue from a year earlier to $67 million as advertising and subscription sales grew.

The company, however, continued to lose money, posting a $1.8-million loss, or a loss of 4 cents a share, for the quarter that ended July 31 compared with a $1.6-million profit, or 4 cents, a year earlier.

Adjusting for stock compensation costs for its executives and other special expenses, Pandora posted $3.3 million in net income, compared with $2.6 million a year earlier. Analysts had expected Pandora to break even for the quarter on $61 million in revenue.

Its shares, which rose 40 cents to $12.47, jumped an additional 33 cents in after-hours trading following the earnings release.

Still, the price is a far cry from the stock's $16 debut June 15. It shot up to $20.04 on July 1, but subsequently slid to a low of $11.73 on Aug. 9 as investors fretted over Pandora's high expenses. In particular, the company spends roughly half its revenue on music royalties to publishers and other rights holders. It paid $33.7 million in royalties in its second quarter.

Pandora, which makes the bulk of its money selling ads, is betting that its revenue will grow faster than its costs as its share of radio listening increases.

The company's 37 million active users spent a total of 1.8 billion hours in its second quarter listening to the free service, accounting for just 3.6% of all U.S. radio listening.

The 11-year-old company hopes that share will grow once its service is a built-in option for new automobiles, where half of all radio listening occurs. But the process of integrating Pandora's features into cars will take some time because manufacturers can take as long as two years to design new vehicles, Pandora Chief Executive Joe Kennedy said in a conference call with analysts.

“It will take some years … before this growth engine is fully developed,” he said.

Meanwhile, Pandora projected that it will continue to be unprofitable for its current fiscal year, despite double- to triple-digit growth in sales.

Revenue for the fiscal year that ends Jan. 31 is expected to be between $270 million and $275 million, with a loss of 5 cents to 7 cents a share.

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-- Alex Pham

twitter.com/AlexPham

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