Pandora: A Case Study in Valuation

Pandora Media boasts over 1.5 bn listening hours in Q1 2012, predicted to grow to 3 bn in Q1 2013. Business model: Revenues - ads only since most users opt out of the ad-free service and pay nothing; 70% of the content streamed to mobile devices where ads cost 1/3 of what they cost online. Costs - for every song streamed Pandora pays royalties. The result: a net loss and the stock down 24% on Wednesday. Unless advertisers pay up, more subscribers will simply mean more losses.