Pandora: Analysis of Operations

Pandora Internet Radio by Pandora Media (P) is a streaming music service. Its free advertising-supported radio service was first launched in 2005. Pandora users streamed 20.03 billion hours of internet radio during 2014. In December 2014, there were 81.5 million active users of Pandora, making it the largest streaming music service currently. Pandora has a database of over 1,000,000 songs from over 125,000 artists.

Pandora offers its streaming music through two services:

1. Free Service: This option allows the listener access to the music by including advertisements.
3. Pandora One: This option is a paid subscription model without any advertisements; it also allows users to have more daily skips and longer listening times.

While Pandora currently has plenty of cash from its investors, it has yet to generate a profit since its inception. Pandora is facing increasing competition from sources such as Apple Music (approximately 6.5 million subscribers in 2015), Spotify (approximately 20 million paid subscribers in 2015), and other streaming services. In addition, Pandora's costs in some areas are increasing.

When Pandora released its earnings for the third quarter of 2015. Earnings were less than expected by investors and Pandora's stock price fell sharply. Below, excerpts from Pandora's statement of operations are provided. Use those excerpts to answer the questions.

Three months ended

Nine months ended

September 30,

September 30,

Revenue

2014

2015

2014

2015

Advertising

$ 194,293

$ 254,656

$ 512,251

$ 664,316

Subscription and other

45,300

56,906

140,551

163,570

Total revenue

239,593

311,562

652,802

827,886

Cost of revenue

Cost of revenue - Content acquisition costs

111,315

211,272

331,051

467,429

Cost of revenue - Other

15,453

21,414

44,421

57,690

Total cost of revenue

126,768

232,686

375,472

525,119

Gross profit

112,825

78,876

277,330

302,767

Operating expenses

Product development

13,381

21,849

38,288

56,466

Sales and marketing

72,320

107,286

200,416

285,595

General and administrative

29,143

35,603

81,369

111,169

Total operating expenses

114,844

164,738

320,073

453,230

Loss from operations

$ (2,019)

$ (85,862)

$ (42,743)

$ (150,463)

Source: Pandora Media, Inc., 3rd Quarter 2015, Financial Results

Initial Question:

Please address the question(s) below. In your post, please support your response (why do you think so?)

Using the statement of operations excerpt in dollars, what can you say about how Pandora did in the third quarter of 2015 compared to the third quarter of 2014?

What can you say about how Pandora did for the nine months ended September 2015 compared to September 2014?