Pandora Reaches 40 Million Active Users, Sees No Impact from On-Demand Services
Pandora Reaches 40 Million Active Users, Sees No Impact from On-Demand Services

Pandora is a radio station and "one of the largest radio stations" in major U.S. markets, CEO Joe Kennedy said during Tuesday's conference call for the company's fiscal third quarter earnings.

Kennedy was addressing two common talking points regarding the popular Internet radio service. Pandora is often criticized for its lack of local advertising. So Kennedy told analysts its share in major markets means it has now started to build out sales teams in those areas. The percent of sales force devoted to local is a "single digit percent" but growth in local sales teams are "in very beginning stages," he said.

Another common thread is a supposed threat from on-demand services such as Spotify. But Kennedy said the company has seen "no impact" on its growth by the activities of other music services. And he reiterated the company's focus on being a radio company. "Radio is a huge market. It's been there for decades."

Americans have certainly shown they like Pandora. During the quarter the service reached 40 million active listeners (people who requested an audio stream in the trailing 30 days), up from about 36 million in July and 65 percent higher than the prior-year period. Listener hours increased 104% to 2.1 billion from about 1 billion in the third quarter of 2010.

Pandora now has a 66 percent share of the U.S Internet radio market, a figure that appears to have been taken from Triton Digital's ranking of the top 20 U.S. webcasters in September. It also claims to have a 4.3 percent share of the U.S. radio market. Executives did not explain how it calculates its overall share.

All that growth is active users and listener hours meant third-quarter revenue was up 99 percent to $75 million. Advertising revenue was up 102 percent to $66 million, while subscription revenue rose 80 percent to $9 million. The company raised guidance slightly on full-year revenue to between $273 million and $277 million.

While growth is more important than profitability at this point, it's worth noting that Pandora did eke out a small profit of $638,000 in spite of a surge in operating costs related mainly to staff growth.

Investors were not impressed, however. Shares of Pandora dropped 2 percent in after-hours trading. The stock closed at $11.85 on Tuesday, down 5.35 percent. Its Tuesday low of $11.65 was its lowest point since Sept. 26.