Amazon is predicted to have a $4.8 billion EBITDA for the past year. That's on $88 billion in sales. It's over a 5% margin, which is good for a broad based retail establishment and an indication of a sound business model The stock sells at a high PE ratio because investors sustain a belief that Amazon can grow the business while at the same time increase margins.
Pandora has increased its operating losses each of the last 3 years... from $11 million to $31 million to a projected $42 million in the last fiscal year. In other words, the more subscribers, the more the losses. There is no economy of scale.
Investors saw the key growth indicators slowing, particularly ad revenues and conversion to paid subscriptions. They saw the burn rate increasing. They realized that future guidance would likely be revised. They also saw the Friday report from the copyright office, which affords no prospect of relief from the excessive fees. And they put in sell orders.
They lose money on every free subscriber, and the more they listen, the more it costs Pandora.
But in the last quarter, the rate of growth slowed, indicating that they are approaching a plateau.
Which is a slowing of conversion to paid subscriptions, perhaps an indication of a saturation point.
This is a typical press release spin. The issue is that all the indications are that growth of paid subscribers is slowing, and growth of ad sales has slowed. But they continue to add unpaid free users, who cost them money.
The keyword here is "slowing" as investors were looking for future profitability which is obviously now more elusive than ever.
The company is losing money... burning capital... at an increasing rate. If there is profitability to be had, it is simply that much further away
People often don't always budget their money logically.
