SIRI), had figured out ways to keep growing its popular service, albeit amid some "fading notes." Last week, the company announced total listening hours for the month of August rose 16% year over year to 1.35 billion hours. The number of people that sign on to the service each month also increased, by almost 30% to 72.1 million, which represents 1% sequential improvement. What this means is that, with a year-over-year improvement of 116 basis points, Pandora now accounts for 7.5% market share of the U.S. radio listening audience. This is impressive growth. Admittedly, I haven't been Pandora's biggest supporter. But there is no way to spin this performance without giving the company its due credit. Unfortunately, however, making money has not been one of Pandora's strengths, despite such solid growth and meaningful market share. Now, with Apple's iTunes Radio, not to mention Google's ( GOOG) All Access service fully in the mix, it just doesn't seem as if Pandora's top-line performance will ever trickle down to profits.
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. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.