Pandora‘s disappointing fourth quarter sales caused the company to fall significantly on Wall Street. As of yesterday, the music company’s shares were down 17.3 percent. Wells Fargo and Raymond James downgraded Pandora’s stock to “market perform,” which means they believe Pandora’s performance won’t exceed an industry or benchmark. B. Riley also downgraded the company to “neutral” instead of “buy.” B. Riley, CRT Capital, Pacific Seacrest Securities, and Credit Suisse Group all dropped its price target for Pandora. B. Riley dropped Pandora’s price target from $38.00 to an extremely low $12.50. Despite Pandora’s disappointing sales, the Pacific Crest Securities analyst believes the company is an asset that is changing radio advertising; although Pandora’s shares have lost over half of their value, the company’s shares have been much lower in the past. For most of 2011 and all of 2012, Pandora’s share were constantly under $15.00 dollars.
On a positive note, Pandora has shown growth in several areas. The company’s revenue increased to $920.8 million, which was a forty-four percent growth. In 2013, Pandora’s net loss was $40.7, but last year its net loss was only recorded at $30.4 million. Pandora is going to federal court on February 10th to battle against song licensing powerhouse, BMI. The two companies are fighting over music royalties, and the trial will determine how much the Internet radio service is paying BMI’s songwriters and music publishers. Pandora claims it paid $446 million in music licensing costs, and most of that money was paid for the recordings. Those recording costs are separate from the songwriting and publishing rights, which are handled by ASCAP and BMI.
BMI’s general counsel, Stuart Rosen, said he wants to make sure their songwriters are being compensated properly. “The foundation of Pandora’s business was built with the words and music of songwriters, and we are fighting on their behalf to secure rates that reflect the true value of their work in today’s digital marketplace,” Rosen stated. Pandora currently pays BMI 1.75 percent of its revenue, but the company wants to cut that rate to 1.7 percent; on the other hand, BMI wants Pandora to raise the fee to 2.5 percent. In reality, BMI and ASCAP fear that their songwriters will quit their organizations, if this matter isn’t resolved. In order to put this songwriting and music publishing issue into perspective, Pharrell Williams‘ “Happy” was played over forty-three million times on Pandora, but Williams was only compensated $2700 dollars.