Pandora Reports $395M in Q4 2017 Earnings, 25 Percent Subscriber Growth
Earnings from new subscribers offset a decline in advertising revenue amounting to an adjusted EBITDA of $5.8 million.
Pandora released its 2017 fourth quarter earnings on Wednesday (Feb. 21) reporting $395.3 million in revenue -- marking 7 percent growth year-over-year for the streaming service, excluding Australia, New Zealand and Ticketfly.
The quarterly revenue and adjusted EBITDA exceeded Pandora's previous forecast, driven by $97.7 million in subscription revenue that offset a 5 percent year-over-year decline in advertising revenue. Pandora reported a 25 percent increase in subscribers year-over-year, counting 5.48 million total -- up 290,000 from the previous quarter -- and amounting to a 63 percent increase in subscription revenue year-over-year.
And while advertising revenue was $297.7 million in the fourth quarter of 2017, down from $313.3 million in the same quarter the year before, a notable bright spot was an all-time high in the company's ad RPM -- which measures revenue per 1,000 impressions. That reached $75.65 in Q4 2017, growing 12 percent year-over-year.
Driving the decline in ad revenue was a 6 percent drop in active users year-over-year, totaling 74.7 million in Q4 2017.
The year-over-year earnings comparison did not include Australia and New Zealand, where the service was discontinued on July 31, 2017, and Ticketfly was sold to Eventbrite on Sept. 1, 2017. With those included, total consolidated revenue for the fourth quarter of 2016 was $392.6 million.
Meanwhile, GAAP net loss was $44.7 million compared to a net loss of $90.0 million over the same quarter last year and adjusted EBITDA was $5.8 million, a significant increase from 2017's loss of $30.4 million.
Speaking with investors on Wednesday, Pandora executives emphasized future potential in the Q4 reports, suggesting a steadying of the ship following what had been a rocky 2017 where its original founder and CEO Tim Westergren, chief marketing officer Nick Bartle and president Mike Herring all left the company.
Specifically, CEO and president Roger Lynch -- the former chief of video streaming service Sling TV -- highlighted user engagement, noting Pandora's status as the world's largest ad-supported music service and that its users spend more time with the service than any other digital publisher, according to Comscore. He also emphasized how the dominant ad-supported service can form a cohesive strategy working in tandem with the paid subscription base, building the two parts up together.
"As much as people want to paint us as either an ad-supported business or a subscription service, I am a firm believer that we need to meet consumers where they are," he said. "While we're the largest ad-supported music service and we intend to press this advantage, I see significant opportunity to grow our subscription business and utilize the tactics I've learned from running three other subscription businesses prior to this."
He also discussed plans to integrate podcasts to the service, calling it a "natural first step" in expanding beyond music "because of Pandora’s ability to address the biggest headwinds to Podcast growth: discoverability and monetization."
"Our strengths in these areas combined with our advertising scale provide us the ability to bring podcasts to market in a way no one else has to-date," said Lynch.
Last month, Pandora announced plans to restructure, including a 5 percent reduction in its workforce and moving many operations to Atlanta, which would account for $45 million in savings intended to reinvest on ad-tech, audience development and more. On this subject, Lynch noted investment in data science and new efforts in programmatic video currently in beta, as well as an audio programmatic pilot with Volkswagen, Omnicom, Media Group and top digital service providers that was announced on Tuesday. While he did not delve into details, he said these offerings were expected to drive further RPM growth over time by increasing sell-through and optimizing CPMs (the price advertisers pay to have their ad shown 1,000 times).
Offering guidance to investors, CFO Naveen Chopra avoided offering specific annual guidance due to a number of "moving pieces" in the business this year, but offered some high-level direction regarding the company's expectations for 2018. That included top-line growth from subscription and improvement to cashflow over the year before. As well, he reiterated the company's leadership's plans to remain on track from the plans laid out last year.
"We are bullish about creating value in this business by combining our existing assets, namely the scale of our audience and strengths in ad-based monetization, personalization and data," he said.