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Will Pandora Ever Make Money?

Stocks in this article: P AAPL SIRI GOOG

If it sounds like I'm proclaiming "doom and gloom" for Pandora, I'm not. As excited as investors might have been with the August numbers, there is also cause for an equal amount of anxiety. You see, Pandora's popularity is and has always been a double-edged sword. The more people that listen to the service, the more it costs the company to operate its business. Since Pandora doesn't own its music content, it has to pay a royalty to the owners of the songs.

Essentially, the more music you listen to, the higher Pandora's fees become. As much as I've always liked Pandora as a consumer, this model has always kept me at bay as an investor. The question has always been, can the company ever monetize its business effectively to the extent where these royalty/content costs can become more manageable?

To that end, aside from instituting a limit on free listening several months ago that it lifted on Sept. 1 and buying an terrestrial radio station, I don't believe Pandora has effectively addressed its business model, particularly from the standpoint of costs. It would also help if the company could figure out a way to turn the August-type numbers into profits. Until then, Pandora will likely remain just another strong growth producer with little substance.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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