- Pandora earnings Q3 2015 were reported after market close on October 22.
- The company reported positive non-GAAP earnings, but is still losing money.
- Pandora’s cash will be depleted by a $90 million settlement over royalties on old music.
- Pandora’s growth is limited by competition from larger players.
Pandora Media (NYSE:P) was slammed in after-hours trading, losing 18% of its value within an hour, after reporting numbers that seemed in-line with analyst estimates but that could not withstand close scrutiny. The Pandora stock went into a further tailspin on October 23, ending the day a whopping 35% lower than its previous close.
Note: You might also be interested in our Pandora Earnings Preview Q3 2015, published earlier last week.
The official earnings release emphasized the positive, with revenue up 20.6% year-over-year, to $311 million, with non-GAAP earnings of 10 cents per share. Those numbers were very close to analyst estimates, which were for non-GAAP earnings of 9 cents and a “whisper number of 11 cents, on revenue of $313 million.
But when GAAP precepts were used – and those are the numbers actually reported – Pandora is still a money-loser. While revenues were up 30% from a year ago, content costs nearly doubled, from $111 million a year ago to $211 million, and total costs were up 84%.
The GAAP numbers had to specifically exclude revenue from its subscription return reserve, stock-based compensation, intangible amortization and one-time charges to the cost of revenue, “content acquisition costs that are not directly reflective of our core business or operating results for the present period.”
There was a bigger disappointment looking forward. Next quarter’s earnings will now be hit by what was originally reported as good news, a $90 million settlement of a lawsuit by music publishers over music released before 1972. Some $60 million of that money is going out this month, with the rest going out in monthly installments of $7.5 million. The settlement drops Pandora’s cash balance below the $175 million it reported at the end of last year.
The expectation of low earnings going forward were matched by surveys indicating that Pandora is being hurt by competition from, among others, Spotify and the “big three” of the digital market – Amazon (NASDAQ:AMZN), Alphabet Inc-A (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). Where last year 50% of consumers saw Pandora as one of their top streaming apps, according to one survey, today only 40% see it that way.
Pandora stock had always been bought on the premise that, while it wasn’t making money right away, that it would scale quickly and start making money later. The settlement means that profitability is further away, and the competition means that the growth may not be there either.
Small wonder that many traders looked at yesterday’s numbers and said sell, sell, sell. Before earnings Pandora was a money-losing music service with a lot to prove, in terms of costs and its ability to scale. Now it’s a money-losing music service with a lot to prove in terms of its ability to compete.