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A Look at Pandora Media’s Future Plans

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Forecast for fiscal 2015

Pandora Media (P) expects its total revenue growth in 2015 to slow down. It expects its 2015 revenues to be in the range of ~$1.2 billion–$1.6 billion and year-over-year growth at the midpoint of ~27% on a non-GAAP (generally accepted accounting principles) basis.

Adjusted EBITDA is expected to be in the $51 million–$56 million range. This guidance excludes Ticketfly’s financial results for 4Q15 or fiscal 2015. Adjusted EBITDA also excludes a forecast of a stock-based compensation expense of $111 million and a forecasted depreciation and amortization expense of $22 million.

The company expects its outstanding diluted shares to be 221 million, excluding 11.6 million shares that will be issued at the close of the Ticketfly acquisition.

As the above chart indicates, content acquisition costs as a percentage of revenues are increasing for Pandora. Excluding the pre-1972 records and RLMC content costs, content costs were 42% of the company’s revenues of $311.6 million in 3Q15.

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Forecast for 4Q15

Pandora expects revenues in 4Q15 in the range of $325 million–$330 million. Adjusted EBITDA is expected to be in the range of $51 million–$56 million. Pandora expects to expense $7.3 million in content expenses concerning the royalty payment for pre-1972 records. It also expects an additional $7.3 million in content expenses concerning forgoing the RMLC (Radio Music Licensing Committee) license in 4Q15.

Pandora has expensed content acquisition costs of $23.9 million in 3Q15 concerning this license. The company, however, intends to reapply for the RMLC license for ASCAP (American Society of Composers, Authors, and Publishers) in January 2016.

The PowerShares QQQ Trust Series 1 ETF (QQQ) holds 0.42% of Sirius XM (SIRI), a competitor of Pandora Media. QQQ also holds 8.48% of Microsoft (MSFT) and 13.2% of Apple (AAPL).

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