Daily Tech Snippet: 12 February 2016

• Pandora Is Said to Have Held Talks About Selling Itself:  Pandora Media, the largest Internet radio service, has held discussions about selling the company, according to people briefed on the talks. Pandora is working with Morgan Stanley to meet with potential buyers, said the people, who spoke on condition of anonymity. The talks are preliminary and may not lead to a deal, the people said. For Pandora, it would be a curious time to sell. Its shares are yielding a market value of $1.8 billion, down from more than $7 billion two years ago. The stock has fallen more than 60 percent since October. Pandora has the largest number of users for music streaming, but the competition is encroaching. Spotify is said to be arming itself with another $500 million in capital, and Apple Music recently surpassed 10 million paying users. Pandora’s users peaked at 81.5 million at the end of 2014, and, after falling to about 78 million in the third quarter of 2015, ended the year with 81.1 million. The company is spending heavily to attract users, and its ability to make money from those users may be waning. In the third quarter, Pandora lowered its full-year financial guidance, expecting its adjusted earnings to be $51 million to $56 million, down from the $75 million to $85 million it projected in the quarter before. “It has lots of users but can’t grow revenue quickly enough,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. “It is another stumbling pioneer.”

• For Analysts, Loving LinkedIn Was Wrong: It’s not often Wall Street says “I’m sorry.” But after LinkedIn reported its earnings on Feb. 4, about a dozen financial analysts with varying strategies and sensibilities issued mea culpas. Some had rated LinkedIn a buy a few hours before its downgraded forecast. They watched in horror as its stock fell more than 40 percent, bottoming out below $104 on Feb. 5. Some put it more simply than others. “We were wrong,” SunTrust Robinson Humphrey analyst Bob Peck wrote in a Feb. 5 note downgrading the stock to “neutral.” (He’d praised LinkedIn’s odds of continued progress two weeks earlier.) Mizuho Securities lamented the company’s “significantly slower” growth prospects, while James Cakmak at Monness Crespi Hardt said he was no longer sure even LinkedIn’s slower growth would be sustainable. LinkedIn took a beating even though its earnings report was consistent with recent performance. As usual, it beat earnings expectations, then issued a lower-than-expected sales forecast for the year. It delivered a similarly disappointing projection in last year’s second quarter, at which point its stock dipped 19 percent. But now Wall Street is more skeptical of the tech stocks it once assumed would grow forever. Until Feb. 5, LinkedIn looked like an ideal tech stock to own, almost like a combination of Facebook and Salesforce.com. A free network for professionals, it has the ingredients to grow virally, like a social media company. It sells services to recruiters, salespeople, and marketers, giving it several ways to snag recurring revenue. “This was considered one of the preeminent names, like Facebook and Google,” says Peck. Now reality is setting in, and to expand, LinkedIn has to do more difficult and expensive things, like developing and selling more product lines. “When companies hit these growth walls, people just react really strongly,” says Lemkin. Walls are springing up all over. On its earnings call, LinkedIn announced it had shut down Sales Accelerator, a software tool designed to connect businesses with potential customers, because of a lack of interest. Analysts had said the feature would be worth millions. LinkedIn’s overall user growth slowed, it got tougher to hold on to paid users, and the company had to lean harder on its sales staff. Small factors added up, and analysts were “blindsided,” says Monness Crespi’s Cakmak.

• Delivery Start-Ups Face Road Bumps in Quest to Capture Untapped Market: DoorDash, one of a multitude of start-ups with a mobile app that lets people order and get food sent to their doorsteps, relies on contract drivers like Brian Navarro to make the deliveries. The problem is that workers like Mr. Navarro don’t always stick around. Mr. Navarro began driving for DoorDash and another delivery start-up, Postmates, in Los Angeles about four months ago. Mr. Navarro, 40, who previously drove for the ride-hailing companies Uber and Lyft, said he had seen plenty of contractors quit DoorDash and other delivery companies during the time he has worked with them. The issue is just one headache now troubling delivery start-ups, which have been among the hottest sectors of start-up activity in recent years. Based on a belief that the companies would succeed once they grew to enormous scale, investors poured more than $730 million into delivery firms like DoorDash, Instacart and Postmates from early 2014 through the first half of 2015, up more than 1,100 percent from the same period a year and a half ago, according to data from CB Insights, a venture capital analytics firm. But entrepreneurs and investors are beginning to find that the economics of making a delivery service work are far from easy. Good Eggs, an organic grocery delivery service, laid off more than 100 employees and shuttered its offices outside its San Francisco headquarters in August. Instacart, the grocery delivery service, recently laid off 12 recruiters, which the company said was “part of an overall plan to slow down hiring” after a growth spree last year. And DoorDash has been turned down by some venture capitalists as it has tried to raise new financing, according to three people familiar with the company’s plans. The problems are rooted in the high operating costs of the start-ups, which typically act as middlemen between consumers and restaurants or grocery stores. The companies not only have to pay for large fleets of drivers, they also have big groups of employees who receive customer orders from the apps and who then manually make calls to the restaurants to order food. At the same time, to attract customers, many of the start-ups offer introductory prices and discounts, often making delivery free for first-time users. As DoorDash’s experience with drivers shows, the start-ups’ costs don’t necessarily decline over time. For some drivers, who are paid a fee per delivery, it can be difficult to make enough deliveries in an hour to make it financially worthwhile for them. And when drivers move on, the companies must spend again to recruit replacements.

• Groupon Soars 23% On Favorable Earnings: Not dead yet, deal site Groupon soared 23% in initial after-hours trading, following a better-than-expected fourth quarter earnings release. The company beat revenue forecasts, bringing in $917 million, instead of the anticipated $846 million, and a 9% year-over-year increase.  Adjusted earnings per share was a four cents, whereas Wall Street was expecting zero. This is quite the bright spot for the company — until today, the stock had been down 71% in the past year. Shares closed Thursday at $2.24, a far cry from the $20 per share the company saw when it went public in November 2011. Groupon has expanded beyond its core local deal business, acquiring services like Ideel, for fashion discounts and OrderUp, for food delivery. But perhaps until now, nothing has been able to change investor perception that the Groupon brand is tarnished. At one point, the company held acquisition conversations with Google, around a $6 billion price tag.  Today, Groupon closed the day with a market cap of $1.4 billion.

• The Difference Between Facebook and Twitter: Twitter Is Lonely for New Users: The simplest reason Facebook has built a massive gap between the two companies over the past three years is that you don’t feel alone on Facebook. It’s easy to find connections because everyone you’ve ever met and their mother is already on the social network. (Seriously, all my friend’s moms have Facebook accounts.) Posting isn’t intimidating because you know who’s going to see it (your approved friends), and you’re almost always guaranteed some kind of feedback on what you share. It may be a “pity Like” from your cousin or your college roommate, but I can’t recall ever seeing a Facebook post that didn’t have at least one like or comment. I don’t care who you are, social validation feels good. Twitter, on the other hand, is lonely, especially for new users. Unless you’re a politician or a celebrity, signing up for Twitter probably means spending your first few days on the service (if not weeks or months) with close to zero followers. Tweeting into a black hole is not fun. Finding relevant conversations is not easy, and venturing into strangers’ conversations takes courage. It’s still too hard to find people to follow when you first sign up on Twitter. The company has made it easier to follow celebrities and media organizations you might want to hear from, but finding people you might actually interact with is a massive challenge the company still hasn’t figured out. I see engagement-less tweets all the time. These things hurt Twitter’s growth because they push people away before they ever see benefit from the platform. That’s why, as of two years ago, nearly a billion people had signed up for Twitter, most of whom never stuck around. (The numbers of deserters is probably much higher today.) The easiest way to fix this problem is to fix Twitter’s feed, which does a great job funneling in a constant stream of live updates and a horrible job helping your tweets get seen. I have 11,000 followers, people I assume follow me because they want to see what I’m tweeting. I tweeted 22 times last week, and my tweets were seen, on average, 3,500 times apiece. (This includes one super-popular tweet that got lots of views thanks to a retweet from an NFL player with a big following.)