Goldman Sachs admits misplaced faith in Pandora

Global investment banking giant Goldman Sachs has admitted putting misplaced faith in the growth of Pandora.

Back in October, Goldman analyst Heath Terry put the digital radio company on Goldman’s Americas Conviction List – highlighting it as a company that investors should consider buying into.

The Conviction List is reserved for stock that analysts are sure will make an outstanding return.

Terry said Pandora could reach revenues of $4 billion by 2020 with premium radio, combined with its newly launched on-demand subscription tier, ad supported listening, ticketing, and growth in auto and home listening.

He also added that competition in the online music space would ease for Pandora thanks to a slowing down of growth of new entrants, labels limiting “free models” and existing providers focusing more on profitability.

“Clearly, we were wrong,” Terry said today.

However, he still believes that Pandora can grow sales in the next few years and turn profitable again by the end of 2017.

“The market is clearly more focused on the company’s execution issues, increasing competition, and lack of profitability, and we see no immediate catalyst to reverse that,” reports Barron’s.

As of today, Pandora stock has declined 36% to the lowest point it’s been for a year at $9.12 — down from $14.65 when it was put on the list in October.

The company will need to do a complete U-turn if it’s to turn profitable by the end of this year.

As we wrote in February, Pandora’s annual net losses jumped by 102% last year – widening from $169.7m to $343m – as its total revenues grew much more slowly, increasing 19% year-on-year to $1.39bn.

The figures mean that Pandora has racked up cumulative net losses of over half a billion dollars in the past two years alone.

Its active user count is at its lowest point in two-and-a-half years – despite the recent (and delayed) launch of Pandora Premium which is supposed to save the company.

According to SEC documents analyzed by MBW, the platform’s total active user count in the 30 days to end of March this year stood at 76.7m.

Compared to the previous year, that figure has shrunk by 2.7m people.

Bear in mind that Spotify’s paying subscriber count – not just free users, but actual cash-spending customers – grew by 10m just in the six months to March this year.

According to a report from CNBC, Pandora is currently in the midst of actively trying to sell itself.

Unsurprisingly, more recent reports suggest it’s having trouble finding a buyer and is instead trying to offload ticketing service Ticketfly, which it bought for $450 million in 2015.

Earlier in May, Pandora agreed to take on a $150m strategic investment from financing giant KKR, whose Richard Sarnoff called “the next few years transformational for the company”.

He continued: “We believe that Pandora is uniquely positioned over the long term given the sheer size of its user base, the quality of its new subscription services and the fact that it has created one of the few scaled streaming media businesses in the US.”

Music Business Worldwide

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