Looks like Ari Herstand isn’t the only getting hated these days. After a splash of hate from Bank of America, Pandora’s stock remains guttered this week.
It’s been a really rough week for Pandora. Wall Street is pounding the company’s stock amidst structural and financial concerns. And this morning’s quarterly financials showed another huge loss. But the biggest lingering concern is whether Pandora can compete with Spotify, Apple Music, and Amazon Music.
Can they join the ranks of the mega-streamers?
No f*&ing way, according to Bank of America.
In a blunt opinion issued earlier this week, the mega-bank doubted that Pandora could ever reach 10 million streaming subscribers. The ‘too big to fail’ Bank of America, which received $20 billion in bailout funds in 2009, downgraded the stock from ‘Neutral’ to ‘Underperform’.
“…we think it will be hard for Pandora to attract 10-15 million paying subs.”
BoA analyst Nat Schindler says Pandora is five years too late to this party. Big gorillas like Spotify have already claimed the juiciest subscribers, Schindler posits. That is, despite Pandora having 78 million active streamers to convert. “Even with Pandora differentiating on auto playlist creation, we think it will be hard to attract 10-15 million paying subs,” Schindler declared.
“Especially because switching users off other services that have invested time in building out their personal playlists will be extremely difficult.”
Meanwhile, newer players are jumping into music streaming as we speak. Look no further than Amazon, whose Amazon Music Unlimited streaming service launched last week. Amazon, which previously offered a scaled-down version for Prime subscribers, is now a full-blown Spotify competitor.
The Bank of America blast was quickly followed by a rough earnings release. Just this morning, Pandora (P) posted losses of $61.5 million, while active listener levels dipped slightly below 78 million. Music Business Worldwide splashed additional ‘criticism,’ counting year-to-date losses at more than $250 million. “Pandora’s active listener base just fell below 78 million people for the first time in two years – as its 2016 net losses surpassed a breathtaking quarter of a billion dollars,” the pub declared.
Wall Street is watching, though it should be noted that Goldman Sachs still rates Pandora as a solid ‘buy’. Goldman is also heavily invested in Spotify, so perhaps they’re bigger believers in this whole digital music thing.
But back to Pandora. Despite big losses, this company has bigger plans. Indeed, cofounder and CEO Tim Westergren is swinging big — really, really big — with a major streaming service launch planned by the end of this year. That follows a massive move into ticketing with a $450 million purchase of Ticketfly, part of a ‘full stack music service’ ambition.
That also includes a stronger push towards artist-friendly platforms, including geo-targeted listening data to help route tours.
Schindler pooh-poohs most of that, noting that near-term expenses are likely to skyrocket. “We expect the subscription service rollout will create near term pain in FY17 as Pandora markets their new low gross profit service and royalty costs increase pushing out profitability further,” Schindler concluded.
I’m actually tentatively planning to switch from Spotify to Pandora whenever they launch their interactive service. Their ace in the hole is discovery. If I want to find new music, Spotify Radio has the tendency to play the same songs I don’t like over and over again, whereas Pandora is much better with the discovery aspect. I often find myself discovering music on Pandora, and adding it to my Spotify playlist. If I can have all that in one place, it would be worth the hour it would take to copy the playlists over. That said, Pandora would need to have all the functionality and ease of use of Spotify, and it remains to be seen what kind of interface they come up with. But if they get that part right, and market it right, particularly the discovery aspect, I think they have a decent shot at 10 million subs.
The other story. Is this not a cautionary tail for the legitimacy of streaming music?
Eventually Spotify will get into another business taking their free and paying subscribers elsewhere; looking at the wreckage of the music business in their rear view mirror.
True, true. Twitter’s current situation is a cautionary tale here. Profitless (until very recently) and vastly overvalued, its worth has plummeted as suitors lost interest this month. Spotify has been an IPO play since the very beginning, and it may have passed its sell-by date in its (and the music industry’s) current situation.