Wrote this blog post in 2018, it was prescient
Reading Pandora Media’s financial statements is like rubbernecking at a car crash on the highway. Completely not necessary, not classy, and perhaps a waste of time. Two years ago I wrote about Pandora’s terrible business situation here. Since then, I personally only use Spotify, and well, Pandora Media is even worse shape. Looking at Finviz for “P’, this is what you see:
Pandora Media (P): Financial Summary
- Revenues: $1.5 Billion
- Profit (Loss): ($567 million)
- Debt to equity : 6x
- ROE: So negative it’s hard to count
With a profit margin of -40%, a cynical non-thinker would advise them . . stop selling so much stuff, you’ll just lose more money. Even the Beta of -0.56 might seem good on the surface (moving with inverse correlation to the market), except I think it’s just a advanced financial lagging metric that says that the market has been great over the last 3-4 years, and P keeps going down.
Income Statement (% of Revenue)
Seeing the profitability problem, I wandered over to Morningstar.com and look at their 5 year income statement trend.
- Cost of goods trending down slightly to 65% in 2017. Good sign
- SG&A costs rose from 36% in 2013 to 48% in 2016. Majorly troubling
- Net income from operations at -35%. Yikes. Sell 1 dollar, and lose 35cents? What?
- Something crazy with “other operating income”, so need to go to 10K to ferret out what that means here.
More shares = more dilution
So Pandora had a net loss of $518 million in 2017. Digging into their 10K, looks like they have 75 million active users, and 5 million paying subscribers. So,doing the simple math. $518M loss / 75M listeners = losing $7 per listener? What?
About to get scarier. Look at the Weighted average share count. The number of shares increased from 168 million shares (2013) to 244 million shares (2017). To me, that smells like dilution. Oddly, it’s dilution of losses. . . but a negative + negative (dilution + losses) is not really a positive, is it?
Balance sheet: Liabilities going up, equity going down
If you learn anything in financial accounting, it’s A=L+E. What I see in 2016 and 2017, is a huge jump in liabilities and drop in equity.
Two large acquisitions = more “Goodwill”
Typically assets are a good thing. It’s what you own. Looking at Pandora, looks like their receivables (money that customers owe them) has increased significantly, but as a % of current assets, it’s fairly flat. The bigger story is the huge amount of goodwill (read: they purchased something at a premium to market value). Looks like they bought TicketFly for $335 million (10/2015), then sold it for $200 million (06/2017) for a $135 million loss. Sheesh. Then in March 2018, they just bought AdsWizz for $145 million (for more strategic ad placements).
Issuing $480M of preferred shares to Sirius XM
Looks like other long-term debt spiked significantly in 2017. This turns out to be $480 million in convertible preferred stock which was issued to Sirius XM. This gives Sirius about 16% stake in the company, when it is all said and done. They also got 3 board seats.
Scariest part of the 10K: # of subscribers going down
If I have not bored / scared you off yet, check out this number. The scariest one in the 10K on page 48. The number of subscribers is actually going down. From 81 million in 2016 to 74 million in 2017. That does not sound like a growth business at all. NB: Financial statements give you a great indication of whats’ good, bad, ugly, but also look under the covers.
New CEO in 2017: 4th in 4 years
After the 10K hunt-down, it’s always good to scroll through some news. Looks like they had a new CEO in 2017. Oh, the NY Times says that they have had 4 CEOs in 4 years. Yikes.
Analyst ratings vary . . .
Stock jump in march, short-covering?
