Pandora To Announce Quarterly Earnings Tomorrow
On the eve of Pandora’s fiscal 2013 earnings report, investors are asking if the company’s growth has begun to slow. Analysts expect the company to post earnings of 1 cent per share. Based on monthly earnings reports, it appears the music streaming company’s growth, albeit high, has started to slow, with listener hours growth at the same 65-70 percent it was in 2011. Considering the company streamed almost 8.2 billion listener hours last year, it’s still nothing to be ashamed of. The gradual decline is becoming apparent, however, as the August growth rate of 70 percent declined to 65 percent in October. And in spite of claiming half of the U.S. population as users, only “active” users count toward revenue since Pandora’s profit depends on advertisements. At some point, the growth in user registrations is bound to decline as the company reaches a certain threshold in the U.S., at which point Pandora will focus on increasing its active user base—currently nearly 60 million people.
Pandora has struggled, however, in earning enough advertising revenue to offset rising music royalties. It must pay the music royalties regardless of how many listening hours are accumulated and advertiser dollars are paid.
Pandora is still a thriving business model. Not only is it the nation’s leading internet radio provider, but two-thirds of its subscribers listen on smartphones. Based on a recent study by Strategy Analytics, more than 1 billion smartphones are now in use worldwide leaving Pandora with a huge market to access. In fact, the worldwide smartphone market increased by more than 46 percent in the past year. If Pandora reaches out to the global market, particularly China, India and Africa where the growth is strongest, it could still increase its customer base monumentally.
Pandora may have stiff competition on the horizon, however. Apple, for example, is reportedly in the process of creating its own music streaming service. Based on its pre-existing relationships with music labels and recording artists—through its iTunes brand—Apple could have the cost advantage over Pandora. Likewise, Microsoft is launching a new service that would allow users to both download and stream music. Some analysts expect Pandora to address the threat of greater competition in its earnings report tomorrow.