Pandora 2012 Annual Report Download - page 26

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Table of Contents
If our efforts to attract prospective listeners and to retain existing listeners are not successful, our growth prospects and revenue will be adversely affected.
Our ability to grow our business and generate advertising revenue depends on retaining and expanding our listener base and increasing listener hours.
We must convince prospective listeners of the benefits of our service and existing listeners of the continuing value of our service. The more listener hours we
stream, the more ad inventory we have to sell. Further, growth in our listener base increases the size of demographic pools targeted by advertisers, which
improves our ability to deliver advertising in a manner that maximizes our advertising customers' return on investment and, ultimately, to demonstrate the
effectiveness of our advertising solutions and justify a pricing structure that is profitable for us. If we fail to grow our listener base and listener hours,
particularly in key demographics such as young adults, we will be unable to grow advertising revenue, and our business will be materially and adversely
affected.
Our ability to increase the number of our listeners and listener hours will depend on effectively addressing a number of challenges. We may fail to do
so. Some of these challenges include:
• providing listeners with a consistent high quality, user-friendly and personalized experience;
• continuing to build our catalogs of music and comedy content that our listeners enjoy;
• continuing to innovate and keep pace with changes in technology and our competitors; and
• maintaining and building our relationships with makers of consumer products such as mobile devices, other consumer electronic products and
automobiles to make our service available through their products.
In addition, we have historically relied heavily on the success of viral marketing to expand consumer awareness of our service. If we are unable to
maintain or increase the efficacy of our viral marketing strategy, or if we otherwise decide to expand the reach of our marketing through use of more costly
marketing campaigns, we may experience an increase in marketing expenses, which could have an adverse effect on our results of operations. We cannot
assure you that we will be successful in maintaining or expanding our listener base and failure to do so would materially reduce our revenue and adversely
affect our business, operating results and financial condition.
Further, although we use our number of registered users and our number of active users as indicators of our brand awareness and the growth of our
business, the number of registered users and number of active users exceeds the number of unique individuals who register for, or actively use, our service.
We define registered users as the total number of accounts that have been created for our service and we define active users as the number of distinct
registered users that have requested audio from our servers within the trailing 30 days from the end of each calendar month. To establish an account, a person
does not need to provide personally unique information. For this reason a person may have multiple accounts. If the number of actual listeners does not result
in an increase in listener hours, then our business may not grow as quickly as we expect, which may harm our business, operating results and financial
condition.
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.
We have experienced rapid growth rates in both listener hours and advertising revenue as a result of our growth strategy to commit substantial financial,
operational and technical resources to build the Company. As we grow larger and increase our listener base and usage, we expect it will become increasingly
difficult to maintain the rate of growth we currently experience. Slower growth could negatively impact our stock price, our ability to hire and retain
employees or harm our business in other ways.
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