Pandora Media Ready for IPO
5/29/2011 by: John Oram
Pandora Media, the popular American internet radio service, filed a new prospectus with US Securities and Exchange Commission (SEC) regulators saying they received $30 million from underwriters. The underwriters include Citigroup Global Markets, J.P. Morgan Securities, and Morgan Stanley.
Pandora allows listeners to create personalized stations with artists, composers, songs, and genres. Listeners can also choose stations organized by genre, create up to 100 personalized stations, plus use a combination feature to listen to two or more of their stations at one time.
Pandora sells advertising and subscriptions for its music streaming service for most devices, including computers using Microsoft Windows, tablets and mobile phones using Apple iOS, Android, Blackberry OS, and HP/Palm webOS.
Since the first of this year, Pandora has gained 12 million more registered users for a total of 94 million according to the company. Despite the rapid adoption, the company isn't profitable and doesn't expect to be so in the next fiscal year, so if you buy stock, don’t expect a return any time soon, but the future looks promising.
From the spreadsheet shown above, you will see that over the past two years, revenues from advertising and subscriptions have been steadily improving. On the other hand, net losses are also increasing, however the ratio of loss to revenue remains fairly constant comparing the first quarter of the last fiscal year to the same period in this fiscal year. That is a positive sign.
Pandora states that their "current business plan depends upon arrangements pursuant to which we obtain licenses from, and pay royalties to, copyright owners of both musical works and sound recordings." A large chunk of Pandora expense is royalties. Although Pandora has a very strong appeal to artists. A large chunk of its expenses are royalties. Westergren says: "Every hour that goes from broadcast radio to Internet radio means more money for artists. That's because Internet radio, unlike broadcast, pays performance royalties. (In 2010), we made $50 million in advertising revenue, and $30 million of that went to artist royalties."
To date, Pandora has financed operations with more than $50 million in venture capital. Part of the proceeds of the IPO will go to pay about $29.7 million in accrued and unpaid dividends on the company's convertible preferred stock.
Pandora grew out of Tim Westergren and Will Glaser's 1999 Music Genome Project. Each song in the Music Genome Project is analyzed using up to 450 distinct musical characteristics by a trained music analyst. In January 2000, Westergren and Glaser joined forces with Jon Kraft to found Pandora Media to bring their idea to market. Under the direction of Nolan Gasser, the musical structure of the Music Genome Project, made up of five genomes (Pop/Rock, Hip-Hop/Electronica, Jazz, World Music, and Classical), was codified and became the basis of Pandora's success.
Earlier this month, Pandora added comedy. Pandora Founder and Chief Strategy Officer Tim Westergren said:
"Pandora is about creating a great, personalized radio experience. Comedy is a natural part of that experience, and it's something our listeners have been asking us to deliver for a while. We are delighted to now be able to give people a mix of familiar and new comic material that they'll love to listen to."
Pandora will add 10,000 clips by more than 700 comedians to its archive, and allow users to sort through them in the same way they do the site’s music. You’ll pick a starting place - a comedian, type of comedy or even a specific joke - and then let Pandora send a stream of similar material chosen by analyzing your comedic taste.
Pandora partnered with the makers of over 200 consumer electronics devices, including Alpine, Panasonic, Pioneer, Samsung and Sony. They have also developed relationships with major automobile manufacturers, including Ford Motor Company, Mercedes-Benz and MINI (BMW Group), and with suppliers to major automobile manufacturers, to integrate the Pandora service into current and future automotive sound systems. To date, the Pandora app has been downloaded more than 50 million times on the most popular smartphone platforms in the United States.
Pandora, SEC, Citigroup Global Markets, J.P. Morgan Securities LLC, Morgan Stanley & Co., IPO, Microsoft, Windows, Apple iOS, Android, Blackberry OS, HP/Palm webOS, Alpine, Panasonic, Pioneer, Samsung, Sony, Ford, Mercedes-Benz, MINI, BMW, Tim Westergren, Will Glaser, Jon Kraft, Nolan Gasser
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