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Traders work at the kiosk where Pandora Internet radio is traded on the floor of the New York Stock Exchange in this file photo. (BRENDAN MCDERMID/Reuters)
Traders work at the kiosk where Pandora Internet radio is traded on the floor of the New York Stock Exchange in this file photo. (BRENDAN MCDERMID/Reuters)

Breakingviews

Why Facebook needs Pandora Add to ...

Pandora Media could be a good companion for Facebook. The Internet radio service for the first time last week illustrated the steady strides it is making in mobile advertising, an area dogging the colossal social network. That makes Pandora an enticing, if pricey, target.

Profit still remains hard to come by for Pandora. It broke even in the three-month period ended July 31, but still expects to lose money for the fiscal year. The cost of the music it streams to 55 million active users again grew faster than revenue. Even so, Pandora’s top line contained some promising new high notes.

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The company did well delivering ads over smartphones, a riddle Silicon Valley is desperately trying to solve. Pandora’s quarterly revenue increased by 51 per cent from a year ago to about $101-million (U.S.). Mobile ads accounted for over half the total.

By contrast, Facebook said that even as the number of daily, active U.S. users disengaging from their computers grew in the latest quarter, the number of ads it distributed to each fell by 2 per cent.

Pandora hasn’t entirely figured out mobile. Measured by the number of listening hours, smartphone ads generate only about a third of the rates as those purchased for desktops. That means Pandora’s mobile success could actually be costing it revenue now. Nevertheless, its mobile ad rates have been increasing and Canaccord analysts forecast they could converge with those for computers by 2015. Pandora also says when it sells an ad directly it already gets roughly the same rate for mobile as desktop.

That all suggests it’s closer to figuring out mobile than Facebook is. Pandora’s stock isn’t cheap, though. The company is barely expected by analysts to be profitable next year. Yet there’s potential it’s beginning to tap. The market values Pandora at three times estimated 2014 sales, or half Facebook’s multiple. At a 50-per-cent premium to where the shares trade, Pandora’s price tag would be $3-billion, more than its IPO valuation in June, 2011. That would make it expensive.

Also, Facebook already has a relationship with Spotify, a Pandora rival. But if Pandora really does crack the mobile problem, making it a Facebook friend could bring useful benefits.

 
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