Pandora Risk Factors

These are actually taken straight out of Pandora’s recent S-3 filings, where you can also see things like their annual revenue, expenses, etc. I’m sharing this because I think it’s important, especially if you’re in the music/tech space, and because I assume most of my friends don’t read through S-3 filings…

And if you’re an entrepreneur, ask yourself this: have I thought through the risk factors of my business? And if so, am I being honest with my investors about these? Just a thought.

In their own words:

  • Internet radio is an emerging market, which makes it difficult to evaluate our current business and future prospects.
  • We have incurred significant operating losses in the past and may not be able to generate sufficient revenue to be profitable.
  • Our failure to convince advertisers of the benefits of our service in the future could harm our business.
  • Advertising on mobile devices, such as smartphones, is an emerging phenomenon, and if we are unable to increase revenue from our advertising products delivered to mobile devices, our results of operations will be materially adversely affected.
  • If our efforts to attract prospective listeners and to retain existing listeners are not successful, our growth prospects and revenue will be adversely affected.
  • 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.
  • If our efforts to attract and retain subscribers are not successful, our business may be adversely affected.
  • If we fail to effectively manage our growth, our business and operating results may suffer.
  • We face, and will continue to face, competition for both listener hours and advertising spending.
  • Our ability to increase the number of our listeners will depend in part on our ability to establish and maintain relationships with automakers, automotive suppliers and consumer electronics manufacturers with products that integrate our service.
  • If we are unable to continue to make our technology compatible with the technologies of third-party distribution partners who make our service available to our listeners through mobile devices, consumer electronic products and automobiles, we may not remain competitive and our business may fail to grow or decline.
  • Unavailability of, or fluctuations in, third-party measurements of our audience may adversely affect our ability to grow advertising revenue.
  • The lack of accurate cross-platform measurements for internet radio and broadcast radio may adversely affect our ability to grow advertising revenue.
  • Our success depends upon the continued acceptance of online advertising as an alternative or supplement to offline advertising.
  • We operate under and pay royalties pursuant to statutory licensing structures for the reproduction and public performance of sound recordings that could change or cease to exist, which would adversely affect our business.
  • We depend upon third-party licenses for the right to publicly perform musical works and a change to or loss of these licenses could increase our content acquisition costs, reduce the sound recordings that we perform on the service or adversely affect our ability to retain and expand our listener base, and therefore could adversely affect our business.
  • If music publishers effectuate withdraws of all or a portion of their musical works from performing rights organizations for public performances by means of digital transmissions, then we may be forced to enter into direct licensing agreements with these publishers at rates higher than those we currently pay, or we may be unable to reach agreement with these publishers at all, which could adversely affect our business, our ability to attract and retain listeners, financial condition and results of operations.
  • If we fail to accurately predict and play music or comedy content that our listeners enjoy, we may fail to retain existing and attract new listeners.
  • Loss of agreements with the makers of mobile devices, renegotiation of such agreements on less favorable terms or other actions these third parties may take could harm our business.
  • We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.
  • If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.
  • Our business and prospects depend on the strength of our brand and failure to maintain and enhance our brand would harm our ability to expand our base of listeners, advertisers and other partners.
  • We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
  • Interruptions or delays in service arising from our own systems or from our third-party vendors could impair the delivery of our service and harm our business.
  • Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
  • Failure to protect our intellectual property could substantially harm our business and operating results.
  • Assertions by third parties of violations under state law with respect to the public performance and reproduction of pre-1972 sound recordings could result in significant costs and substantially harm our business and operating results.
  • Assertions by third parties of infringement or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.
  • We may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, operating results and financial condition may be harmed.
  • We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
  • We face many risks associated with our long-term plan to expand our operations outside of the United States, including difficulties obtaining rights to publicly perform or communicate to the public music on favorable terms.
  • Expansion of our operations into non-music content, including our launch of comedy, subjects us to additional business, legal, financial and competitive risks.
  • Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
  • We could be subject to additional income tax liabilities.
  • If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our business.
  • Federal, state and industry regulations as well as self-regulation related to privacy and data security concerns pose the threat of lawsuits and other liability, require us to expend significant resources, and may hinder our ability and our advertisers’ ability to deliver relevant advertising.
  • If our security systems are breached, we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract listeners and advertisers.
  • We are subject to a number of risks related to credit card and debit card payments we accept.
  • If we fail to detect click fraud or other invalid clicks on ads, we could lose the confidence of our advertisers, which would cause our business to suffer.
  • Our success depends upon the continued acceptance of online advertising as an alternative or supplement to offline advertising.
  • Some of our services and technologies may use “open source” software, which may restrict how we use or distribute our service or require that we release the source code of certain services subject to those licenses.
  • Government regulation of the internet is evolving, and unfavorable developments could have an adverse effect on our operating results.
  • We could be adversely affected by regulatory restrictions on the use of mobile and other electronic devices in motor vehicles and legal claims are possible from use of such devices while driving.
  • We rely on third parties to provide software and related services necessary for the operation of our business.
  • The impact of worldwide economic conditions, including the effect on advertising budgets and discretionary entertainment spending behavior, may adversely affect our business and operating results.
  • Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.
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