Internet radio leader Pandora is selling 13M common shares, and one of its stockholders is putting 5.2M more shares on the market. The SEC filing associate with the offer is interesting for its listing of the risks a buyer will be taking when it antes up for a piece of the company.
The shares are being offered at $25 apiece. Ideally, Pandora is hoping to make $313.625M, the shareholder – entities affiliated with Crosslink Capital – is looking to pull in $125.45M; and underwriters will get $15.925M.
The company provided a general self-description, noting, “We are the leader in internet radio in the United States, offering a personalized experience for each of our listeners wherever and whenever they want to listen to radio on smartphones, tablets, traditional computers and car audio systems, as well as a range of other internet-connected devices. The majority of our listener hours occur on mobile devices, with the majority of our revenue generated from advertising on these devices.”
It goes on to discuss the moves it is making to grow profitability.
Then comes the risk list, which includes things like:
* Internet radio is an emerging market, which makes it difficult to evaluate our current business and future prospects.
* We have incurred significant operating losses in the past and may not be able to generate sufficient revenue to be profitable.
* Our failure to convince advertisers of the benefits of our service in the future could harm our business.
* Advertising on mobile devices, such as smartphones, is an emerging phenomenon, and if we are unable to increase revenue from our advertising products delivered to mobile devices, our results of operations will be materially adversely affected.
* If our efforts to attract prospective listeners and to retain existing listeners are not successful, our growth prospects and revenue will be adversely affected.
* We have experienced rapid growth in both listener hours and advertising revenue. We do not expect to be able to sustain these growth rates in the future and our business and operating results may suffer.
* If our efforts to attract and retain subscribers are not successful, our business may be adversely affected.
* If we fail to effectively manage our growth, our business and operating results may suffer.
* We face, and will continue to face, competition for both listener hours and advertising spending.
* Our ability to increase the number of our listeners will depend in part on our ability to establish and maintain relationships with automakers, automotive suppliers and consumer electronics manufacturers with products that integrate our service.
* If we are unable to continue to make our technology compatible with the technologies of third-party distribution partners who make our service available to our listeners through mobile devices, consumer electronic products and automobiles, we may not remain competitive and our business may fail to grow or decline.
* Unavailability of, or fluctuations in, third-party measurements of our audience may adversely affect our ability to grow advertising revenue.
* The lack of accurate cross-platform measurements for internet radio and broadcast radio may adversely affect our ability to grow advertising revenue.
* Our success depends upon the continued acceptance of online advertising as an alternative or supplement to offline advertising.
* We operate under and pay royalties pursuant to statutory licensing structures for the reproduction and public performance of sound recordings that could change or cease to exist, which would adversely affect our business.
* We depend upon third-party licenses for the right to publicly perform musical works and a change to or loss of these licenses could increase our content acquisition costs, reduce the sound recordings that we perform on the service or adversely affect our ability to retain and expand our listener base, and therefore could adversely affect our business.
* If music publishers effectuate withdraws of all or a portion of their musical works from performing rights organizations for public performances by means of digital transmissions, then we may be forced to enter into direct licensing agreements with these publishers at rates higher than those we currently pay, or we may be unable to reach agreement with these publishers at all, which could adversely affect our business, our ability to attract and retain listeners, financial condition and results of operations.
* Loss of agreements with the makers of mobile devices, renegotiation of such agreements on less favorable terms or other actions these third parties may take could harm our business.
* We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.
* If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.
* Our business and prospects depend on the strength of our brand and failure to maintain and enhance our brand would harm our ability to expand our base of listeners, advertisers and other partners.
* We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
* Interruptions or delays in service arising from our own systems or from our third-party vendors could impair the delivery of our service and harm our business.
* Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
It goes on…
RBR-TVBR observation: As Misterogers might have said, “Can you say caveat emptor?”
On I personal note, I signed up for Pandora some time ago to check it out for business reasons and really liked it, even recommended it to some good friends. My tastes are off the beaten path and it was refreshing to find a service that could follow me off the main highway and down some far-less traveled musical byways.
That said, maybe because my tastes are unusual, the service seemed to take me to the same places more often than not. In the end, I have found I prefer to explore for new music by striking out on my own in the wilds of the internet, where I, not Pandora, choose what to sample next.
Anyway, we wish Pandora the best of luck. It truly is a revolutionary service, which is to its credit but which comes with the curse of inspiring imitators and competitors to jump in the business with it.
