Stock Market Remains Unfriendly To Pandora
By Kyle Bylin (@sidewinderfm), founder and editor of sidewinder.fm, a music and tech think tank.
I've never taken a strong interest in Pandora’s performance on the stock market, because I mainly write about music products and behavioral trends. What I've noticed, though, is how the company's IPO changed how media outlets talk about digital music services. Rather than talk about the product features or listener trends, people often talk solely about the viability of the business model and debate whether the company can survive in an increasingly competitive landscape. The stock market appears to dislike any moment that a new music service debuts, because it raises doubt that Pandora can succeed. Once news that Twitter planned to enter the digital music sector broke, shares took a plunge.
As I prepared questions about Pandora for this interview panel, I knew that I wanted to ask about the company’s IPO. I wanted to learn how technology executives and startup founders viewed the performance of Pandora in the stock market. I wanted to ask them if they believed other streaming music services might attempt to go public. Given that the perception of Pandora and Facebook’s stock performance seems to be fairly negative, it could’ve dashed (or at the very least delayed) the hopes of Spotify taking a similar path. Taking these things into consideration, I decided to ask four influential executives in the music and technology industry this question: What is your perception of how Pandora has performed in the stock market? Will more streaming music services try to go public?
Stock Market Hesitant On Pandora's Long-Term Potential
By Max Engel | Director of Product at the web publisher SpinMedia, formerly BuzzMedia.
I am by no means an analyst, and so my perception of their performance goes only as far as my arm chair analysis of what statistics I can glean from Google.
However, my general feeling is that the market is hesitant about the long-term potential for a company like Pandora that has little diversity in its revenue streams and costs that scale with growth. I think that the markets are wondering about how Pandora will break out from the pack.
For the rest of the streaming music services, I think that IPO’s may occur, but they won’t succeed until we see a model for revenue growth that isn’t tied to simply user subscription fees. For services like Spotify and Rdio, I think the looming questions are around what happens when the big music retailers enter the subscription space, which I think is inevitable.
If Apple or Amazon flipped the switch on a similar service (which Amazon is rumored to be doing), I think it will be hard for those companies to continue the same types of growth. Similarly, Apple’s own purported radio discovery service could be a similar threat to Pandora, and the market might be concerned about this. My concern is that the entrenched parties might not be sitting on the sidelines out of fear, but instead are observing the competition to find a more scalable model for growth, since they already have shareholders to answer to.
Ultimately, I think Spotify might get to an IPO first, but I’m not sure if the market will like it.
Stock Market Could Grow More Friendly To Music Tech
By Vivek Agrawal | Co-founder of the playlist service Playground.FM.
One could look at Pandora's performance in the market and see that it has been less than stellar. Despite debuting at over $20 in 2011, its currently trading at 70% of it's initial IPO price. There have been numerous analysts questioning whether they are the next big mistake a la SiriusXM, and there are open questions as to whether they can both mitigate increasing royalty costs and quickly create stronger revenue-generating products that can be realized faster than the long play of advertising.
That being said, compared to a number of other tech stocks that went public around that time, Pandora is doing quite well; Facebook is trading at 67% their IPO price, Zynga at 25%, and Groupon an abysmal 20%. Their revenue numbers continue to improve quarter after quarter, and they're still gradually eating market share of terrestrial radio. While they are barely profitable for now, they serve as the poster child for the future of leanback listening — as Internet connectivity continues to expand past smartphones into tablets, TV's, and cars, the future looks bright for Internet radio.
While 2013 may not be a great year for streaming music services to go public, I think the market will become much more friendly to it in the coming years. The big concerns around streaming music are luckily not around consumer demand for the experience. Unlike the days of Napster and imeem, where revenues were paltry compared to engagement and streaming costs, much progress has been made today — Spotify and Pandora have brought in hundreds of millions of dollars for their respective models, remain close to break-even after paying royalty costs, and have not severely cannibalized other revenue streams. As digital music revenues from subscriptions and advertising continue to grow over the next five years, the public market will become more friendly to the business.
With Enough Profits, Music Tech Can Work On Stock Market
By Tony Hymes | Community manager at the music discovery website whyd.
It would be unfair to apply Pandora’s situation to other streaming services, which rely on entirely different models. Pandora is arguably too one-dimensional to continue to achieve enough growth in user base to generate increased revenues and thus dividends to its shareholders.
Subpar earnings results towards the end of last year caused the share price to fall heavily, especially with the speculation of an even poorer-performing Q4, although it has recently recovered to nearly where the price was at the original offering. The stock market is hard to gauge really, since so many different factors and strategies come into play. Plus, someone could whisper the word "bubble" and investors start pulling their money and putting it into copper.
Will other streaming services go public? Absolutely, but they will learn from Pandora (who is really experiencing the same thing as Facebook, a much touted flotation, followed by poor results which led to a severe drop in value followed by a resurgence to nearly the same level as the opening) more so from a business model perspective. If Spotify has a solid subscription base that generates a profit, why not go public? Pandora is like Facebook because it depends on its users being on the platform to generate money. If the users are not physically there, there is nothing they can do. Whereas a subscription service generates money every month, regardless of how many times someone logs on.
Streaming music is the same as any other business: if it makes profits, it will work on the stock market. Let’s hope Spotify turns into the black this year!
Pandora’s Poor Performance Won’t Prevent Rivals From IPO
By Jason Keck | Founder and CEO of the social music application Stereotypes.
It’s funny how the perception of a company changes when they go public. For years, Pandora was the darling of the music industry. Users loved them, Apple loved them, Google loved them and they had great success. As soon as they went public, though, people started looking at them in an entirely new light. Perception was measured by stock market performance rather than the quality of their service offering.
I don’t follow their performance in the stock market closely, but the general perception is that they have not performed well. News that they are not profitable has hurt them and now even the artists are coming together to speak out against Pandora’s recent lobby for reduced royalties saying that Pandora is making money while they are not.
That said, I don’t think Pandora’s poor market performance will prevent other music services from going public. Companies go public to achieve a few goals: 1) so they can raise money to grow, 2) so investors can get a return on their investment, and 3) so employees can benefit from their hard work. Investors can take their money off the table at the IPO, but for employees to benefit, the stock must perform well for at least six months after the IPO because they are restricted from selling stock before then. If a music service can get a good valuation and they feel that the stock will perform well for six months, then it makes sense for them to go public and I think they will.
Photo Credit: Flickr
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Sidewinder.fm is founded and edited by Kyle Bylin of Live Nation Labs. If you would like to contribute a post to be featured on the site, please reach out.
can’t blame them for being hesitant. pandora has yet to make a dime of profit and they have stiff competition from spotify, rdio, siriusxm, internet radio, traditional radio, etc., etc. and they’ve been getting negative press regarding their payout rates. an investor has to wonder if their business model is intrinsically flawed.