For Pandora, Premium Remains Key To Reaching Profitability
Pandora released its Q1’17 earnings on May 8. The results were a mixed bag for the company, as the top line exceeded guidance but earnings continued to drop lower, reaching an all-time low due to high content acquisition costs as a result of some direct deals signed in late 2016.
Interestingly, the company received a $150 million investment from KKR, and has lowered its guidance for the year. Pandora Premium remains the biggest hope for a turnaround in the company’s earnings.
The Countdown To Reach Profitability Has Begun For Pandora
Pandora has received $150 million in investments from KKR, and is exploring the potential of another $100 million in preferred stock investments in the near future. While this fresh investment capital is good news for Pandora in the near term, it will not do much for the company operationally. The company expects to turn profitable by the end of this year, which may be a challenging task given the fact that the company has lowered its revenue guidance for the full year by $50 million. The company reduced its headcount by 7% earlier this year, but that has yet to translate into bottom line growth.
Pandora Premium Is The Biggest Hope
The initial user reviews of premium have been positive, attributable to its interactive interface, new playlist features and the ease of use. However, Pandora has been late in entering the on-demand music service and it will be difficult for Pandora to convince Spotify’s and Apple Music’s users to make a shift. In addition, Spotify and Apple Music boast a library of over 30 million songs compared to Pandora’s 1 million. Therefore we expect the company to have some difficulty attracting premium users early on, and if it fails to grow the number of paid subscribers substantially – as was the case when Pandora Plus was released – then the company’s losses could worsen.