Pandora’s S-1 [updated]
[Updated 3/4/11]:
As Glenn Peoples notes in his good piece on Pandora, people tend to focus on a couple of key things when thinking about the company’s IPO; the most interesting one to me is that, even with $90 million in revenue (for the nine months ended 10/31/10), Pandora is barely break-even. In their S-1, the company even states “we expect to continue to incur operating losses on an annual basis through at least the end of fiscal 2012.”
Since Pandora’s growth is driven by mobile, but display advertising on mobile devices is in such infancy that it will not cover the expenses of that streaming content, Pandora will have to do two things to get profitable, in my opinion:
1) derive much more revenue from locally targeted audio advertising than they do now (in this regard, it’s helpful that most mobile devices are GPS-enabled)
2) increase their revenue from subscriptions – either through a more compelling freemium model, or by charging some kind of fees for their mobile app.
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Pandora filed its S-1 in February, and the document makes some interesting reading, especially the P & L page. Some quick takeaways:
- The company had an operating loss of $15 million in 2010
- 58% of its total revenue gets spent paying content licensing fees
- 9% of its $55 million in 2010 came from subscriptions, the rest came from advertising
Among the risks they list to their business, the following two will be acutely familiar to anyone who’s been in the Web radio:
- our ability to more effectively monetize mobile listener hours, particularly as the number of listener hours on mobile devices grow;
- our ability to continue to operate under the statutory licenses set forth in the Copyright Act;
The whole document can be found here.
