Pandora Shows Strong Growth, Sees No Impact from Spotify Launch
Internet radio company Pandora Media delivered what it needed to deliver in its first earnings release as a public company: growth in the important, top-line categories like active users and listening hours, plus continued strong growth in revenue. Its net loss of $1.8 million in the quarter ended July 30 is merely a footnote at this point in the company's history.
Both active users and listening hours grew nicely from the previous quarter. Pandora finished July with 37 million active users, up from 36 million in mid-July and 34 million on April 30. (An active listener is one who has requested an audio stream in the last 30 days.) Listener hours were 1.8 million, up 13% from 1.6 million in the previous quarter and up 125% from 800 million in the prior-year period. With that increase came a greater share of the radio market. The company estimates it had a 3.6% share of all radio listening in the quarter up from 1.8% last year.
With more listeners hours comes more potential for advertising revenue. Revenue in the quarter grew to $67 million, up 117% from the prior-year period and up 31.3% from $51 million in the previous quarter. Mobile revenue improved to "approximately half" of all advertising revenue, the first time it has reached that threshold. That's good news. Pandora gets 70% of its listening hours from mobile, but mobile CPMs lag behind desktop CPMs. Subscription and other revenue totaled $8.7 million, or 13% of total revenue, a slight drop from 14.5% in the first quarter and on par with the 13.4% in its last fiscal year.
Investors took note of the improvement in the top-line numbers. Shares of Pandora (NYSE: P) closed up 3.31% at $12.47 after falling as far as $11.42 in the middle of the day (before earnings were released about 30 minutes before the market's close). More notably, Thursday's earnings release was good enough to stop a three-day slide. Shares opened Monday at $13.59 and went as low as $11.29 on Tuesday.
As I wrote Wednesday, the important things to watch for in the earnings release have to do with Pandora's current growth, not its current profitability. Last quarter's $1.8 million loss is not a major concern, and music industry onlookers need not worry about the financial health of the company. Pandora ended the recent quarter with $95.3 million of cash and cash equivalents, virtually no long-term debt and the ability to again tap the capital markets.
Pandora CEO: Company Not Impacted by Spotify
-- Pandora isn't seeing a Spotify effect, Pandora CEO Joe Kennedy said Thursday during the company's earnings call. Ever since Spotify and Turntable.fm launched earlier this summer, there's been a lot of chatter that they present a threat to Pandora. Both have strong social features, something Pandora is currently improving. And both are addictive in their own ways.
During the earnings call, an analyst asked if Spotify presented a threat to Pandora's subscription business. No, replied Kennedy, pointing out that Spotify operates in a "fundamentally different marketplace" than an advertising-based radio company. And he noted that Pandora's user and listening hour growth continued to grow last quarter. Although to be fair, Spotify wouldn't make too much of an impact on Pandora's latest numbers because it debuted in the U.S. about two weeks before the end of Pandora's fiscal quarter.
In any case, Kennedy's statement leaves little room for interpretation. "We haven't been able to discern any impact from any of the digital music initiatives that have launched over the past three to six months," the CEO said.
Pandora's Musical Press Release
-- Pandora's earnings release included a clever marketing ploy: the actual Pandora music service was embedded at the bottom of the online press release. If Pandora recognizes you as a registered user, music will play while you're reading about the company's fiscal second-quarter results. A fun way to share earnings but a good way to confuse people who can't immediately tell which application or browser tab is making the noise.
SoundHound App Links With Spotify In Europe
-- SoundHound now enables Spotify users in Europe to instantly access songs discovered through the SoundHound app. After a Spotify Premium subscriber presses the "Play Now in Spotify" button, the Spotify mobile app will launch and the song will play. That's a great addition -- better than the 30-second preview and links to YouTube videos -- that U.S. users will enjoy when the feature makes it across the Atlantic.
Classical Music Fans' Qualms With Spotify
-- Since its launch in July, journalists have given Spotify mostly positive reviews. But as has been the case in the past, classical music fans are feeling left out. Steven Smith sums up the classic enthusiast's frustrations at the New York Times:
"Finding classical music on Spotify is easy; finding a specific recording, on the other hand, can feel like anything but. As always seems to be the case, classical buffs have to work harder than pop-music fans to build and organize the virtual library of their dreams. The problem, as usual, comes down to data, specifically, metadata, the information that tells a computerized player what content the files on a compact disc contain and how to organize tracks you've downloaded from the Internet."
Some services cater to classic buyers. Deutsche Grammophon, Naxos.com, Passionato and eClassical are perfect for classical fans. And rock-heavy eMusic allows buyers to search by fields specific to classical music such as composer, conductor and performer.
But a flawed service can be worth one's time or money -- even if it won't completely replace the high-quality formats preferred by classical fans. As Smith wrote, "For convenience and the potential for discovery, I will happily use Spotify or a similar service daily. But I won't be giving up my CDs and LPs just yet."
(New York Times)