if this is what 50% of the internet radio market is worth… Pandora shouldnt be in it!

Posted on June 18, 2011

0


following the Pandora IPO and the release of their numbers it really got me thinking. if this is what pandora can deliver with 1.6Billion hours of listening time, is it missing a very big trick? radio stations command far higher revenues than Pandora does without all of that attention, so where is it going wrong?

is it that it doesnt own the car, which is a “intimate” experience vs in office or other background listening areas. does it not have a strong sales force?

below are the pre-ipo numbers from seeking alpha (pls note the $36MM being taken off the table by investors).

Pandora (P) P, C, 6.5

Post IPO shares: 160mm

Internet radio Jan 31 fisal

April 3 mos ’10

April 3 mos ’11

Oakland, CA

2008

2009

2010

2010

2011

IPO Mkt

Revenues ($mm)

$19

$55

$138

$22

$51

Cap (mm)

Content acquisition % of rev

84%

60%

50%

59%

57%

$1,760

Net income (loss)

-$28

-$17.00

-$2

-$3

-$7

@$11

Net income (loss) %

-147%

-31%

-1%

-14%

-13%

Listner hours, billions

0.9

1.8

3.8

0.7

1.6

Registered users, mm

22

45

82

53

94

Active users

7

16

29

18

34

Quarterly results

Jan 2010

April 2010

July 2010

Oct 2010

Jan 2011

April 2011

Revenues ($mm)

$24

$22

$31

$38

$48

$51

Content acquisition % of rev

44%

58%

48%

48%

50%

57%

Net income (loss)

$2

-$3

$2

$1

-$1

-$7

Net income (loss) %

8%

-14%

5%

3%

-3%

-13%

COMPARE
Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing April 2011 qtr

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Pandora (P)

$1,760

8.6

-63

25.5

25.6

9%

SCORECARD

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

Growth

mination

tary

rating

20 is perfect

2

2

1

1.5

6.5

compare this with clearchannel’s radio business, and you see a different picture of overall profitability that radio can generate.

 

   Radio
Broadcasting
      
Three Months Ended March 31, 2011
Revenue    $ 640,345         
Direct operating expenses      192,108         
Selling, general and administrative expenses      226,649         
Depreciation and amortization      64,456         
Corporate expenses      —           
Other operating income – net      —           
Operating income (loss)    $ 157,132         
Intersegment revenues    $ 7,380         
Capital expenditures    $ 16,007         
Share-based compensation expense    $ 1,554         
Three Months Ended March 31, 2010
Revenue    $ 623,199         
Direct operating expenses      203,760         
Selling, general and administrative expenses      227,097         
Depreciation and amortization      63,932         
Corporate expenses      —           
Other operating income – net      —           
Operating income (loss)    $ 128,410         
Intersegment revenues    $ 6,654         
Capital expenditures    $ 4,589         
Share-based compensation expense    $ 1,749         

Pandora’s business is highly reliant on the music industry licensing model, and unless that industry transforms or there is a tremendous increase in self publishing or overhaul of copyright laws – there wont be a change in this market for quiet a while and the more people listen to Pandora, the lower the profit will be.

 

on an ad sales point of view, its a dissappointing number overall to have so little revenue from such a big audience. never mind that its a very small subset of the total online music experience – you should be able to generate some revenue from this kind of attention?

the IPO price is interesting as the share was repriced towards the $16 mark  and then sank down to a curent $13Mark after having 48 hours of fun. the net effect though is that pandora now has a lot of cash and more options, in a rapidly changing media world, that is worth a hell of a lot.

 

 

 

 

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