Pandora Earnings: Still Losing Money
If you were hoping to see streaming online-music service Pandora (P) move closer to solvency, its earnings today had to come as something of a disappointment. The company announced a $1.8 million loss for the quarter ending July 31, significantly worse than the $1.6 million profit it posted during the same period last year.
More important, Pandora's total cost of obtaining the music it plays went up, year over year. As a percentage of gross revenue, that cost was 55.4 percent in 2010, but 58.5 percent in the second quarter.
The surprise here is that Pandora had actually seemed to be getting a handle on its music costs over the past several years. If that downward trend is over, then either the company either needs a lot more revenue or had better pray like hell that it can negotiate lower rates in the future. Otherwise, um, disaster looms.
Here's the consolidated statements of operations (click to enlarge):
The increasing cost of music is one problem, though not the only one. General and administrative expenses were 12.6 percent of total revenue last quarter. However, in 2010, they were 9.3 percent. Maybe the jump owes to trying to grow, but such a strategy doesn't make sense if Pandora's management can't find a way to reduce even more the company's cost of content.
It's never a good sign when a company's income from operations drops while the gross revenue increases. Somehow, the promise of size bringing greater efficiency rings hollow. So what is the company's strategy? Perhaps it hopes to further increase its advertising volume -- rates, too, perhaps -- and, eventually, subscription fees as well. Whatever it does, Pandora needs to find a way to make revenue outpace the growth of royalties.
Related:
- Pandora's Cost of Music Isn't the IPO Problem Critics Think
- Pandora Jukebox Collects a Lot of Coin for Some Investors
- Pandora's Morning After, and the Associated Management Headache
- Pandora Boxed In: Crippling Rise in Music Fees Set Through 2015
Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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