Pandora Revenue Up 40 Percent, Listening Growth Softens

Pandora
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The Pandora Media Inc. logo shown on an iPhone in 2013. 

Updated: 7:20 p.m.

Pandora, the world's biggest Internet radio company, achieved big revenue gains in the third quarter in spite of a softening in its listener metrics.

The company posted a $2 million net loss, an improvement from the $4.1 million loss a year earlier, on record revenue of $239.6 million, up 40 percent from the same period last year. Mobile revenue was $188 million, up 52 percent, while local advertising was up 118 percent to $41.8 million.

In the first 9 months of the year, Pandora's revenue rose 49.2 percent to $652.8 million, while its net losses grew much slower, 16.4 percent, or $49.7 million. Shares were down 7 percent in after-hours trading following the earnings release.

The company's listener stats were a mixed bag of slowing listener growth and falling listener hours. Active listeners at the end of September grew 5.2 percent, 76.5 million from 72.7 million a year earlier. However, active listeners were up just 100,000 over the 76.4 million listeners at the end of this year's previous quarter.

More notable was the 1 percent decline in listener hours, to 4.99 billion hours from 5.04 billion hours in the second quarter. The numbers looked better when viewed with a longer lens, however, as listener hours were up 25 percent from the prior-year period.

Chief executive Brian McAndrews attempted to put a positive spin on the listener metrics. During Thursday's earnings call, McAndrews highlighted the growth in the time each user spends listening. Indeed, listener hours per active user increased 18.8 percent compared to the third quarter of 2013. And McAndrews warned that adding active users "will be more challenging" given "an increasingly competitive environment" -- a nod to streaming services like iTunes Radio and Google's acquisition of Songza -- and Pandora's "already significant market position."

Royalties -- Pandora's largest expense -- accounted for 46.5 percent of revenue, an improvement from 54.8 percent a year ago, and marked the "lowest in our history as a publicly traded company," chief financial officer Mike Herring said during the earnings call. The current slate of statutory royalty rates paid by Pandora and other webcasters run through 2015 and the proceeding to set rates for 2016 through 2020 is underway. Pandora is seeking a slight decrease in per-stream rates while SoundExchange, representing record companies, has proposed a hefty increase.

Pandora upped its forecast for full-year revenue. Non-GAAP revenue is now expected to be in the range of $912 million to $917 million, up from prior full-year guidance of $895 million to $915 million.