Groupon got it's spanking in last week's blog, is it Pandora's turn? Let me start by saying Groupon is looking to go public at a $25 billion valuation whereas Pandora will be just north of $2 billion, and they're obviously two very different businesses. Pandora which should go public this Wednesday, raised its IPO price per share to $11 last week. With a whopping 90 million users and constant flow of advertisements every 5 songs or so, Pandora should be doing alright, right? Not really because the cost Pandora is paying to music label companies to stream their music severely outweighs the ad revenue. Moreover, as the smartphone market continues gaining traction, the ad revenue will decrease for Pandora. The PC market is more desirable from an ad standpoint.
Pandora had sales of $51 million for the quarter ending April 30th but they were not profitable and suffered their worst loss at $6.8 million. Pandora predicts they will continue going southward on the money train until 2012, at the earliest. So investor beware and don't get caught in the Tech IPO hooplah. Unlike Groupon, Pandora isn't seeing losses in the $400 million range and they're not as reliant on marketing. But remember, technology is developing at a rapid pace, and we saw Google institute a music type program last week. Another scary competitor who just signed a deal with Universal Studios is London based Spotify. Spotify announced today they are looking to launch in the US very soon and this will be big. Spotify lets you stream music on an I-tunes type program from a variety of music label companies for free. You can then share songs or lists with your friends. I-tunes meets Pandora? They have 1 million paid subscribers across Europe as of March and they're only growing. Pandora is awesome, I use it, you use it, my cat uses it, etc. It's pretty awesome to be letting the radio station pick the song for me rather than me brainstorming what my favorite songs/bands are. But the costs for Pandora to run such a unique company are extremely high and only getting higher. This isn't some Kazaa or Napster type program because the music label companies are getting a piece of the pie.
The other semi-big news in tech land was the fact that Facebook is losing users, at least some of them. Facebook which has nearly 700 million users worldwide saw a decline in the number of users in the US. There were 155.2 million users in the beginning of May compared to 149.4 million near the end of May. What gives? Let's remember that it's summertime for most kids so no more multitasking for college students on Facebook, a history paper, chemistry test, and your email at the same time. People might be finally socializing outside the way it's supposed to be done and several have internships or jobs now where Facebook's use is prohibited.
Is this is a pause for concern? No, not at all. These dips have happened before with Facebook and even MySpace, and will continue to happen again. This isn't a significant portion of users first of all and a similar looking decline in users happened in 2010 and 2009 with Facebook and then a surge northward followed that. Maybe people are concerned about all the privacy and hacker news happening with Sony, I'm not sure. But one thing to consider is that more people are spending internet time on their phones and the smartphone business is increasing, and Facebook Mobile is terrible to say the least. So, just because people are buying more smartphones doesn't mean more of them will be signing up for Facebook because its design for mobile needs an improvement. That's why you're seeing companies like Color, which lets users post photos and then find people that are hanging out somewhere near them, get VC funded for $40 million pre-launch. VC investors know social is weak for cell phones, maybe Color can be the mobile network. Nice movie title there.
This decline in users will be scary if another couple dips follow (like what happened to MySpace), which is unlikely to happen. WSJ reporters mentioned today that China is a big market that Zuckerburg has yet to take hold of. Chinese are paranoid about displaying their private info on a social network platform so it will take some time for any agreement to get reached. Zuckerburg made a trip out to China last month with no apparent success aside from some "agreement." China hones 1/3 the world's population and would add a significant portion of users. Maybe, just maybe Facebook has reached its peak. There are many new social media start-ups getting funded as they focus on a social network for young kids. EverSocial is one company that got a backing last week and look for more to arise. As 6 million users "unfriend" Facebook (as per the WSJ), investment banks will be "adding" Facebook as a friend as the company is expected to go public in early 2012 per CNBC. Facebook announced a couple months ago it expects to reach that 500 investor threshold by the end of 2011 and at that point (according to SEC regulations) they'll need to file to go public. At a valuation of $100 billion not $85 as we've often heard. That will be outrageous but we'll see what the company does this summer in terms of users and international exposure. That could decide whether they're the real deal or pretenders.
LET'S GO BRUINS!!
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