When Do We Expect Pandora’s Mobile Ad Business To Become Profitable?

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Pandora Media

Pandora relies on mobile advertisements for about 62% of its revenues and the business segment isn’t even profitable. Bogged down by high content acquisition and sales and marketing costs, the company has been clocking huge losses. Cutting costs is somewhat unrealistic for the company because content forms the basis of its business model and the company has no control over the royalty rates. And, in the case of sales and marketing, Pandora is actually investing more, rather than cutting costs, as it is looking to break its way into the local advertisement market.

Therefore, the only way Pandora can get profitable is by increasing its mobile ad revenues at a faster rate than expenses, and this can be done effectively exploiting the local advertisement market, which is currently dominated by terrestrial radio services. The Internet radio company has been ramping up its sales and marketing teams to make inroads into the local ad domain and it has seen some notable success so far.

Pandora break even table

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Pandora’s local ad revenue growth has been consistently ahead of its overall ad revenue growth. Granted that the company’s local ad business is moving in the right direction, it will be a while before the mobile ad segment becomes profitable because local ad business is small relative to the company’s overall ad business. Therefore, we have estimated that Pandora’s mobile ad business could become profitable after four years, with a controlled rise in content and sales & marketing expenses, and faster growth in its top line.

Pandora break even charts

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Pandora
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