Soundcloud
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SoundCloud's latest earnings report shows a familiar pattern in music streaming -- the company's expenses and losses far outpaced its revenue growth in 2014.

Revenue grew 53.9 percent to €17.4 million (US $19.7 million) but its loss before income taxes, depreciation and amortization nearly doubled to €36.9 million (US $41.8 million). The deficit came from a large increase in administrative expenses -- the staff to develop and market the service -- up 67.8 percent to €47.8 million (US $54.1 million). In all, including cost of sales, SoundCloud spent €56.4 million (US $63.8 million) to generate €17.4 million.

Fast growth meant SoundCloud was burning cash in 2014. Its operating activities -- the normal course of business -- had a net outflow of €32.3 million. Cash on hand fell to €14.9 million from €47.2 million. Financing activities had a net inflow of €2.1 million in 2014 compared to a net inflow of €45.8 million in 2013.

In order to keep its growth engine fueled, SoundCloud raised $77 million in funding last year, and it may need even more. The earnings release says the company's business plan shows that "further capital investment will be required in the next 12 months" in order for its operations to become cash flow positive. The company expects losses to continue for another three years as it signs more licensing deals and invests further in its platform.

Its investors -- including Union Square Ventures and Kleiner, Perkins, Caufield & Byers -- are clearly betting SoundCloud can turn its popularity and ubiquity into sizable subscription and advertising revenue. It hasn't been successful so far. SoundCloud was widely reported to have 175 million users globally around the end of 2014. But its average revenue per user, or ARPU, was just 11.2 cents.

Two benchmarks indicate a range of revenue that could be expected from SoundCloud. Spotify had an ARPU of roughly $27 in 2014. At that ARPU, SoundCloud's user base would have generated revenue of $4.7 billion. But Spotify is different than SoundCloud. It gets about 91 percent of its revenue from subscriptions. SoundCloud may not be able to convert a substantial portion of its listeners into paying customers.

A better comparable is Pandora, primarily an advertising-based service that got 21 percent of revenue from advertising. It had an ARPU of roughly $11 that year. At that rate, SoundCloud's user base of 175 million would have generated $1.9 billion.

A revenue range of $1.9 billion to $4.7 billion seems lofty for a company that took in $19.7 million. But that's what should be expected from a company that is monetizing a massive user base built on free music.