Oct 24, 2014 · 2 minutes

For years, Pandora has been lumped with Spotify when talking about the profitability struggles of streaming music services. But while it still hasn't been able to turn profits quarter-in and quarter-out, yesterday's earnings statement may mean the service has finally turned a corner.

In its third financial quarter, Pandora's adjusted profits doubled to 9 cents a share on its largest revenues yet. While the company still posted an operating loss of $2 million, that's a huge improvement over the previous quarter when it saw a loss of $4.1 million. The company attributes this boost to more investment in creative advertising offerings, like "Promoted Stations."

So if Pandora is beginning to prove that there's money in them streaming music hills, why has the stock been sliding since March?

Like Twitter, Pandora has struggled with user growth, increasing active listeners by only 5.2 percent to 76.5 million and investors are less than enthused. It's still way ahead of its closest competitor Spotify, but it might not be for long -- Spotify almost doubled its users between 2013 and 2014.

Granted, Spotify has spent huge sums on promotion and user acquisition, whereas Pandora has focused more on monetizing its existing users in recent quarters. But that may not be the only reason Pandora has struggled to grow.

For example, Spotify will be less likely to hit a user plateau so soon because of its ability to expand globally. Spotify operates in almost sixty countries, whereas Pandora is only available in the United States, Australia, and New Zealand. That's because, unlike Spotify, Pandora is a radio station and therefore must navigate a whole other tangled web of regulations and incumbents that differ in each country.

That's bad news in a space where many believe the bulk of the future growth will happen globally, thanks to rapidly increasing smartphone penetration around the world. “We’re not even at the beginning of the first inning when it comes to the global demand," Rdio COO Marc Ruxin tells me.

Pandora is actively having the conversations it needs in order to spread globally, but there are other concerns as well. Wedbush Securities analyst Michael Pachter tells Bloomberg, "Sluggish active user growth suggests that services such as iTunes radio and Spotify are hurting Pandora’s ability to attract new listeners.” Even smaller companies like Rdio have prioritized the radio experience in its latest redesign.

Pandora's greatest strengths were that it was early to the market, and that its Music Genome predictive algorithms became an early favorite. With more listening data than its competitors, Pandora still has the best radio algorithm in the game. But if it's true that Spotify and iTunes Radio are pulling customers away, then it seems like users care less about the algorithms than they do about listening to music in their app-of-choice. And in many ways, Spotify offers a better radio experience, in that if a band comes on serendipitously, and you want to hear more, just switch over to Spotify's on-demand streaming section. And finally, algorithms are never perfect and, in any case, are continually being complemented by more socially-driven forms of curation.

None of this is good news for Pandora. That said, figuring out how to monetize streaming music is a huge step, both for Pandora and for the industry at large. It still faces big challenges internationally, and will continue to fight for users as other competitors launch their own radio stations. However, it still has the best brand recognition in the game -- but for how long?

[illustration by Brad Jonas]