Pandora Sees Quarterly Gains in Subscription and Mobile Revenue

Pandora's gains in its most recent fiscal quarter were helped by an increase in subscribers that stemmed from the listening caps the company placed on mobile listening in March. The company added over 700,000 net new subscribers to its Pandora One, ad-free service in the quarter, a 114% increase year-over-year.

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The gain in subscribers was "more than we expected," CEO Joe Kennedy tells Billboard. "In the overall grand scheme of things, the cap worked as we expected." He says a "very small percentage of listeners" were affected by the cap. Those listeners that did run into the cap returned to Pandora in some fashion. In addition to the option to subscribe to Pandora One, listeners had the option of paying $1 for unlimited listening through the end of the month.
Revenue grew 55% to $125.5 million. Mobile accounted for $86.7 million, up 97% from the prior-year period. Subscription revenue more than doubled to $20.4 million from $10.2 million. The company's net loss improved to $20.2 million from $28.6 million a year earlier. Listener hours in the quarter grew 35% to 4.18 billion, up from 3.09 billion in the prior-year period. According to the Pandora's calculations, its share of national radio listening rose to 7.33% from 5.86%.

Thursday's earnings included an increase in fiscal guidance from $615 million to $635 million, up from the previous guidance of $600 million to $620 million. Some of the increase was due to the unexpectedly strong gains in subscribers in the first quarter, although the company does not expect that growth rate to sustain itself over the entire year.

Investors reacted positively, sending shares of Pandora up over 9% in after-hours trading after closing up 4.1% to $17.16. Pandora will surpass its 52-week high of $17.65 if Friday morning trading follows after-hours trading Thursday. 

One thing hasn't changed: Pandora is growing like a weed but has not yet attained profitability. The company's net loss declined to $28.6 million from $20.2 million a year earlier. The success of Pandora's business model depends greatly on its ability to monetize mobile listening, which accounted for 79% of listener hours in the quarter. Mobile revenue is headed in the right direction as mobile RPM (revenue per 1,000 impressions) increased to $26.15 from $19.16 a year ago. But mobile also has much room for improvement: web RPM in the quarter was $48.33.

Another key component of Pandora's quest for profitability is content acquisition costs, or the royalties it pays for streaming music. As a percent of revenue, content acquisition costs in the quarter were 66%, down slightly from 69.1% a year earlier. Because the company pays royalties based on the number of streams its users generate, and because more and more listening takes place on mobile devices, Pandora's mobile monetization will be the vital factor in reaching profitability.

"This quarter is really just a story of continued momentum of all the initiatives we've been talking about for a long time," Kennedy told Billboard. One important initiative is the recent integration of the Mediaocean and STRATA media buying platforms into Pandora's billing system to facilitate planning and buying.

Pandora announced two smaller initiatives earlier this week. One was the debut of Pandora Premieres, a station that streams albums a week before their street dates. The other was a deeper integration with Facebook that will allow listeners to automatically publish their listening history to their Facebook Timeline and populate their musical identity in Facebook's music section. Numerous other digital music services have offered this integration since Facebook launched Open Graph in January 2012.