Pandora 2012 Annual Report Download - page 24

Table of Contents
Risks Related to Our Business
Internet radio is an emerging market, which makes it difficult to evaluate our current business and future prospects.
Internet radio is an emerging market and our current business and future prospects are difficult to evaluate. The market for internet radio has undergone
rapid and dramatic changes in its relatively short history and is subject to significant challenges. As a result, the future revenue and income potential of our
business is uncertain. You should consider our business and prospects in light of the risks and difficulties we encounter in this new and rapidly evolving
market, which risks and difficulties include, among others:
• our relatively new, evolving and unproven business model;
• our ability to retain our current listenership, build our listener base and increase listener hours;
• our ability to effectively monetize listener hours, particularly with respect to listener hours on mobile devices;
• our ability to attract new advertisers, retain existing advertisers and prove to advertisers that our advertising platform is effective enough to justify
a pricing structure that is profitable for us;
• our ability to maintain relationships with makers of mobile devices, consumer electronic products and automobiles; and
• our operation under an evolving music industry licensing structure including statutory and compulsory licenses that may change or cease to exist,
which in turn may result in a significant increase in our operating expenses.
Failure to successfully address these risks and difficulties, and other challenges associated with operating in a new and emerging market, could inhibit
the implementation of our business plan, significantly harm our financial condition, operating results and liquidity and prevent us from achieving or sustaining
profitability.
We have incurred significant operating losses in the past and may not be able to generate sufficient revenue to be profitable.
Since our inception in 2000, we have incurred significant net operating losses and, as of January 31, 2012, we had an accumulated deficit of $101.4
million. A key element of our strategy is to increase the number of listeners and listener hours to increase our market penetration. However, as our number of
listener hours increases, the royalties we pay for content acquisition also increase. We have not in the past generated, and may not in the future generate,
sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses. If we cannot successfully earn revenue at a rate that exceeds
the operational costs associated with increased listener hours, we may not be able to achieve or sustain profitability. In addition, we expect to invest heavily in
our operations to support anticipated future growth and the reporting and compliance obligations to which we are subject as a public company. As a result of
these factors, we expect to continue to incur operating losses on an annual basis through at least fiscal 2013.
Our revenue increased rapidly in each of the fiscal years ended January 31, 2007 through January 31, 2012; however, we expect our revenue growth
rate to decline in the future as a result of a variety of factors, including increased competition and the maturation of our business, and we cannot assure you
that our revenue will continue to grow or will not decline. You should not consider our historical revenue growth or operating expenses as indicative of our
future performance. If our revenue growth rate declines or our operating expenses exceed our expectations, our financial performance will be adversely
affected. Further, if our future growth and operating performance fail to meet investor or analyst expectations, it could have a materially negative effect on our
stock price.
In addition, in our efforts to increase revenue as the number of listener hours has grown, we have expanded and expect to continue to expand our sales
force. If our hiring of additional sales personnel does not result in a sufficient increase in revenue, the cost of this additional headcount will not be offset,
which would harm our operating results and financial condition.
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