Despite growing revenue more than 50% year-over-year, Pandora posts a loss in Q2

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Issue Date: 
Aug 30 2012 - 12:05pm

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Pandora earningsPandora's revenue and active user count both grew around 50% year-over-year in Q2 of fiscal 2013, while its mobile revenue nearly doubled. But that still wasn't enough to offset growing royalty costs, which amounted to nearly 60% of the company's revenue this quarter. To combat those high costs, Pandora has stepped up lobbying efforts for more manageable rates and is striving to -- as CEO Joe Kennedy said -- "disrupt the $16 billion radio advertising market."

The webcaster's revenue for Q2 of FY13 (the three months that ended July 31) reached $101.3 million -- up 51% year-over-year. Its mobile revenue in particular grew 86% year-over-year, reaching $59.2 million. "This quarter demonstrated that our mobile monetization strategies are working," said Kennedy.

Mobile represents around 58% of Pandora's total revenue, which accounting for 75% of usage. But Kennedy says they're "narrowing that gap... That ultimately is the key to getting the content acquisition costs down," he told Billboard (here).

Pandora accumulated 3.3 billion listener hours during the quarter, a growth of 80% year-over-year. The webcaster now has 54.9 million active users (up 48%). That growth in listening means higher royalty payments.

Pandora mobileDuring Q2 FY13, Pandora paid $60.5 million -- or just under 60% of its revenue -- in royalties to the music industry. That's up 79% year-ovear-year. Royalties have accounted for 63.9% of Pandora's revenue during the first half of the fiscal year, reports the New York Times.

All told, Pandora posted a net loss of $5.4 million for the quarter. That's the "sixth quarterly loss in two years," writes NYT, which also points out Pandora lost $3.2 million during this period last year. The problem, as always, are those royalty costs. Pandora is attacking the issue on two fronts.

First, the company "has already begun lobbying in Washington over its rates" in anticipation of new royalty rate proceedings, set to begin in 2014.

Second, "Pandora has been building up local advertising sales teams around the country, and also pushing to be included in ad networks that would put its service into direct competition with terrestrial radio stations," reports NYT (here).

"Salespeople are being deployed all over the country to compete with radio for advertising dollars," writes Radio Ink (here). "In 2011 Pandora had 427 people on the payroll. That number has increased to 589 employees with the bulk of the new hires (79%) in sales."

You can find Pandora's press release here.

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