Will Pandora Ever Make Money? Two-Year Losses Top $512.7 Million

 

How will Pandora survive in the streaming market when it keeps posting triple-digit annual losses?

For the fourth quarter of 2016, Pandora reported revenue of $392.6 million. Although the figures beat Wall Street expectations ($374 million), it has yet to answer the question that also haunts Spotify: will the streaming service ever make money?

 

In the three months that ended December, the company reported a $90 million loss, or 38 cents per share. After removing one-time gains, costs, stock option expense, and pretax expenses, the loss comes out to 13 cents per share. Wall Street expected slightly higher losses, at 21 cents per share. The news also comes one month after the Oakland-based streaming service announced they would lay off 7% of its workforce.

While fourth quarter revenue grew 16.1%, annual losses for the company jumped 102%. In 2015, the company lost $169.7 million. Last year, that number jumped to $343 million (per MBW.) In the past two years, the company has lost at least $512.7 million.

However, reported revenue was up 17% year over year, also beating out Wall Street expectations. Yet, Pandora posted a $30.4 million loss. This figure jumped from $24.8 million in the prior year quarter.

Despite launching Pandora Plus and Pandora Premium, the bulk of the company’s revenue comes from advertising. Advertising brought in $313.3 million, a 16% jump. Yet, paid subscriptions and other revenue only brought in $59.8 million, a 5% increase. Active monthly listeners also saw a dip with 81 million people listening to the service. That number is slightly down from 81.1 million listeners in the prior year’s quarter.

 

Investors reacted accordingly to the news. In after-trading hours, Pandora shares fell more than 5%. That number has since rebounded as of writing, with the stock up 4.75% of its open price of $12.65.

Pandora founder and CEO Tim Westergren underscored the company’s fourth quarter revenue. According to Westergren, the fourth quarter was the largest revenue producer in the company’s history. In a statement, he said,

“We made significant progress in 2016 by driving leverage in our core business while accelerating subscriptions to our paid product. We enter 2017 laser-focused on the growth of our ad-supported business, the launch and growth of our subscription products, and an artist-to-fan platform to drive listener engagement and ticket sales. These three strategic pillars operate in harmony to create mutually reinforcing revenue streams across a large and growing addressable market.”

Westergren also emphasized how its service, which lets users skip songs and provides a better offline experience, makes it easier for them to complete with Apple Music, Spotify, and Amazon. When asked about company growth against other streamers, he responded,

“Ultimately, it’s about the quality of the product. I think the reason that you’re not seeing the kind of growth that some people anticipated [from current streaming leaders] is that the products are very hard to use.

We really don’t think there is a true premium product on the market yet. We think Pandora will be the first premium product.

Pandora also disappointed Wall Street with its first quarter 2017 forecast. The company predicted revenue of $10 million to $320 million. Per FactSet, analysts expected revenue of $342 million. Pandora also predicted 2017 revenue from $1.55 billion to $1.7 billion.

Westergren told investors that he expects the company to add between 6 to 9 million paid subscribers. Yet, the company has yet to present a clear and logical game plan to achieve its expected growth. In 2016, Apple Music added 11 million subscribers. Spotify, another company that has yet to post a profit, added 15 million.


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