Zoaring Music, Inc., is a start-up tech company that streams live music via various channels and plans. When Zoaring released its earnings for the second half of 2021, earnings were less than expected by investors and Zoaring’s stock price fell sharply.

Following are excerpts from Zoaring’s statement of operations, both in dollars and in common-size formats. (These excerpts are condensed for educational use; financial statements in real life have much more detail.)

Requirements:

1. Using the statement of operations excerpt in dollars, what can you say about how Zoaring is doing in the second half of 2022 compared to the second half of 2021? What can you say about how Zoaring is doing for the twelve months ended December 31, 2022, compared to December 31, 2021? Can you tell if the rate of increase is greater for revenues or expenses from 2021 to 2022? Why or why not?
2. Using the statement of operations excerpt in dollars again, why is the loss from operations larger in 2022 than in 2021?
3. Using the common-size statement of operations excerpt, what can you say about how Zoaring is doing in the second half of 2022 compared to the second half of 2021? What can you say about how Zoaring is doing for the twelve months ended December 31, 2022, compared to December 31, 2021? Is the rate of increase greater for revenues or expenses from 2021 to 2022?
4. Using the common-size statement of operations excerpt again, why is the loss from operations larger in 2022 than in 2021? Also, what can you say about the mix of advertising revenue versus subscription revenue?
5. Which statement (dollars versus common-size) is more useful for analyzing the financial performance of Zoaring in this case? Explain.

Transcribed Image Text:

D 123456789UH2345678901234 Zoaring Music, Inc. Excerpt from Condensed Consolidated Statements of Operations - in DOLLARS (in thousands, except per share amounts) Six months ended December 31, Twelve months ended December 31, 2021 2022 2021 2022 8 Revenues Advertising S 194,293 $ 254,656 $ 512,251 $ 664,316 Subscription and other 45,300 56,906 140,551 163,570 11 Total revenue 239,593 311,562 652,802 827,886 12 Cost of revenue Cost of revenue-Content acquisition costs 111,315 211,272 331,051 467,429 Cost of revenue- Other 15,453 21,414 44,421 57,690 15 Total cost of revenue 126,768 232,686 375,472 525,119 16 Gross profit 112,825 78,876 277,330 302,767 17 Operating expenses Product development Sales and marketing General and administrative 21 Total operating expenses 22 Loss from operations 23 13,381 21,849 38,288 56,466 72,320 107,286 200,416 285,595 29,143 35,603 81,369 111,169 114,844 164,738 320,073 453,230 $ (2,019) $ (85,862) $ (42,743) $ (150,463)