Pandora Media held its first get together for equity analysts on Tuesday. Its pitch: this is just the beginning.
The company's road map was clear and realistic. Rather than eye other markets or undertake a radical transformation, Pandora is going to continue with what got it from struggling startup to Internet darling with a successful IPO: focus on access, content, advertising and user experience.
The clarity seems to result from a focused sense of self. Pandora described itself to analysts as a radio company in a radio marketplace that accounts for 93% of the U.S. population and 80% of all music listening. In other words, Pandora is saying it operates in an absolutely huge market and can grab a lot of market share (which can increase revenues to a point that might justify its current $3 billion-plus valuation).
Above all, it became clearer than ever that Pandora does not want to be something it is not - and that should please analysts and investors. It will not reinvent either itself or its product, although the company revealed Tuesday a redesigned web service that uses HTML5 for a refined, speedier and more social user experience. Since it does not have iTunes envy or Spotify envy, it will not directly compete with on-demand music subscription services or download stores.
And why should the company change? It now claims to have improved its share of U.S. radio listening to 3.6% at the end of June, up from 2.2% at the end of 2010 and 1.1% at the end of 2009. All other Internet radio services accounted for 2% of radio listening at the end of June. All figures do not include satellite radio - a big hole considering Sirius XM has over 20 million subscribers - and are estimates based on internal data as well as data from Ando Media, Arbitron, the U.S. Census Bureau.
But the big question is: How much more can Pandora grow within the U.S.? The company revealed Tuesday it has surpassed 100 million registered users and has 36 million active monthly users. In other words, nearly one-third of the entire U.S. population has registered (not accounting for some possible double counting) and about one in nine are active monthly listeners.
The more productive path to revenue growth is to grab listening hours from the competition. One obvious way to do that is through the automobile. Not coincidentally, the company also announced Tuesday it has expanded its relationship with Ford and has a new relationship with Scion. That makes a total of seven relationships with auto manufacturers, plus another five with after-market companies. It drove home the point in the presentation: 47% of listening comes in the car. Translation: the automobile is a large, untapped market that represents huge potential.
The company does have a few uncertainties, however. A push into the automobile means a greater emphasis on audio advertising, which has lower CPMs than display advertising. Another growth area is international expansion, which would add greater complexity and present Pandora with a slew of incumbent streaming services.
In addition, it's unclear how much of Pandora's lead can be sustained over the long haul. Internet radio clearly has the ability to grab listener hours from broadcast radio, but there will be other companies fighting for Internet radio's share of hours. Pandora will have ample competition, including a personalized Internet radio service from Clear Channel this September, personalized radio service Slacker (which also prizes listenership in the automobile) and upstart social music services like Turntable.fm.
The company's stock fell 5.5% to $18.05 on Tuesday, not because of the Analyst Day presentation but apparently because of another analyst started coverage of the company with a "sell" rating and a target price below the stock's current market price.