Pandora results

A little tougher to figure, but revenue was up 54%, and I’ll stick with them as long as they keep increasing revenue by large amounts year over year. They are hiring lists of sales people which is keeping earnings down, especially in the first quarter when advertising is sharply down after the Xmas season is over.

Here are my notes:

Saul

Apr 2014 – Announced Mar quarter results

Revenue of $180.1 million, up 54%
Mobile revenue now 74% of adj total revenue

Adj earnings of a loss of 13 cents

User engagement reaches record highs

Share of total U.S. radio listening in March 2014 was 9.1%, up from 8.1% last year

Pandora started 2014 with robust momentum and continued solid growth. Our strong first quarter results demonstrate our deep listener engagement, accelerating monetization, and increasing leverage in our business model. Looking ahead, we will continue to invest aggressively to extend our leadership position and drive forward the future of radio.

First Quarter Financial Results

Revenue: Revenue was $180.1 million, a 54% year-over-year increase. Advertising revenue was $140.6 million, a 45% year-over-year increase. Subscription and other revenue was $39.5 million, up 94%.

Cash and Investments: We ended with $445.9 million in cash and investments, compared with $450.1 million at the end of 2013. We used $2.2 million in operating activities compared to $12.9 million used in the year-ago quarter.

Other Business Metrics

Listener Hours: Total listener hours grew 12% to 4.80 billion for the first quarter of 2014, compared to 4.26 billion for the same period last year.

March 2014 Active Listeners: Active listeners were 75.3 million at the end of March, up 8% from 69.5 million a year ago. And our listeners are strongly engaged as listener hours grew even faster at 12%, increasing from 4.26 billion to 4.80 billion

Guidance

We are providing the following financial guidance:

Second Quarter 2014 Guidance: Revenue is expected to be in the range of $213 million to $218 million. Adj earnings are expected to be between $0.00 and $0.03.

Full Year 2014 Guidance: Revenue is now expected to be in the range of $880 million to $900 million, from $870 million to $890 million. Adj earnings are now expected to be between $0.14 and $0.18, from $0.13 to $0.17.

Despite typical Mar quarter seasonal advertising headwind, these strong financial results were driven by increasing user engagement, rising listening hours and our continued focus on improving monetization.

In March, we experienced our first ever week with over 25 million active listeners every weekday. Importantly those listeners are using Pandora for record lengths of time consuming an average of 21.9 hours per active user for the last 30 days of March.

The strengthening connection with listeners was supported by recent product enhancements like our alarm clock, sleep timer and station recommendations platform. To highlight just one example of incremental impact these programs can deliver, people using our alarm clock functionality on Android are listening to Pandora 30% more days per week and 3% more hours each day than they listened prior.

Additionally, we continue to expand Pandora’s availability. As an example of our progress, Pandora is now available in 10 out of 10 of the best selling passenger vehicles.

All of this has contributed to our increasing market share. Our share of total U.S. radio listening increased from 8.1% a year ago to 9.1%.

Bolstered by the momentum in our monetization efforts, we made some important program changes to optimize Pandora One, including a modest price increase for new subscribers which will begin to take place in Q2.

Conclusion: A little tough to figure, but revenue was up 54%, and I’ll stick with them as long as they keep increasing revenue by large amounts year over year. They are hiring lists of sales people which is keeping earnings down, especially in the first quarter when advertising is sharply down after the Xmas season is over.

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Thank you for the write up, Saul. I am holding my P shares as well. Strong Revenue growth!

If you had to add to a position right now would it be AFOP or P? Based on today’s prices (assuming you had a similar size position in each). I am assuming your answer is AFOP. As of now P is down 12% and AFOP is down 7.5%.

-Nate

If I had to choose I’d go with AFOP probably because it’s making a lot of money and has a low PE, while Pandora is just getting it turned around (although I do like that 50% plus revenue growth.

Saul

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Well that AFOP turnaround didn’t take long!

Nate

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One thing that is positive about Pandora, is that it is available on TiVo. Spotify and other streaming services will have to compete for space on home boxes. I have 2 TiVos in my house. I subscribed Pandora because I can listen through my home theater speakers which are the best speakers in my house. And I can also with Pandora via my iPhone and either Bluetooth or cable connection to the radios in my cars. (I like that too because if I get a call the music stops automatically) I paid for the Pandora One because for $36 a year I can have commercial free hi quality streaming. I love it.

I did download Spotify on my iPad and iPhone, I like it ok. But it is not available on my TiVo. We have the HD TiVo boxes, and those are two boxes behind the current one, so I do not know if Spotify is available on newer boxes. So if I really want to hear a specific song I might listen to Spotify, but I do like Pandora One, a whole lot. It is great value and if the price goes up along with inflation - ok. If the price goes up a bunch more I would have to think about it. And if I get new equipment in my home and Spotify is available, I would consider changing services.

So I think it is something to look into. What are the new home boxes offering? Exclusive space to one music service? Or all of them and the consumer chooses? As far as I know the apps are available regardless of the mobile device, but the fixed boxes are more important.

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A great discussion of Pandora’s results:

Saul

http://newsletters.fool.com/1069/coverage/updates/2014/04/25…

Pandora Makes Excellent Progress

By David Meier
April 25, 2014 - Earnings

Pandora Media (NYSE: P) picked the wrong time to slightly miss analysts estimates for revenue and give lighter-than-expected second quarter earnings guidance. The stock declined about 6% in the after-hours market following the report. Unfortunately, the sell-off accelerated after the market opened, and shares are down about 13% as I write this.

You wouldn’t know it from today’s stock market action, but Pandora’s business continues to make solid progress. I will go over some of the other numbers from its report as well and highlight the important areas for long-term investors.

Some numbers
Let’s start from the very top of Pandora’s model: listeners and listening hours.

Despite typical Q1 seasonal advertising headwinds, these strong financial results were driven by increasing user engagement, rising listener hours, and our continued focus on improving monetization. Active users increased 8% year-over-year from 69.5 million to 75.3 million in the first quarter of 2014. And our listeners are strongly engaged as listener hours grew faster at 12%, increasing from 4.26 billion in Q1 2013 to 4.8 billion in Q1 2014.

More listeners listening to more music is exactly what Pandora and its advertisers want. Together, they define Pandora’s reach and the number of opportunities to generate ad impressions.

Both continue to move in the right direction (up). And Pandora is leveraging those improvements into much faster top line growth. Non-GAAP revenue (adjusted for the subscription revenue return reserve) rose 54% to $180.1 million. Analysts expected $181.3 million.

Solid increases in advertising RPMs (revenue per thousand songs played; equivalent to price) along with an increase advertising volume bolstered sales growth. Here’s the full account.

Our focus on monetization has continued to lead the strong results. Total non-GAAP RPMs reached $37.55 in the first quarter, up 37% compared to the year-ago period RPMs of $27.41. Advertising RPMs maintained the momentum we built in 2013, climbing 34% from $24.85 in the first quarter last year to $33.40 this year. Mobile monetization growth was significantly stronger, as mobile advertising RPMs reached $29.46 in the first quarter of 2014, increasing 44% from $20.43 in the same quarter last year.

Ad pricing was strong for the quarter, especially on mobile. And that’s a great sign. Online advertising is the wave of the future, and market researchers expect the mobile ad segment to grow from $18 billion in 2013 to about $95 billion in 2018. What’s more, Pandora ranks 4th in market share for mobile ad revenue, with Google (NASDAQ: GOOG), Facebook (NASDAQ: FB), and Twitter (NYSE: TWTR) ahead of them. That’s pretty good company. So it shouldn’t surprise you that Pandora’s mobile ad revenue showed excellent growth and is becoming the dominant part of its top line. Here are the important lines from its press release.

Q1 2014 GAAP total mobile revenue of $147.0 million and non-GAAP total mobile revenue of $134.1 million, growing 92% and 71% year-over-year

GAAP total mobile revenue now 76% of GAAP total revenue; non-GAAP total mobile revenue now 74% of non-GAAP total revenue

I would conclude that, based on the numbers above, Pandora’s top line looks very strong today. What we want to determine is if its going to continue.

Where Pandora’s investing
One of the reasons that management gave second quarter earnings guidance that’s less than estimates is that the company plans to continue to invest heavily to build out its sales force. Pandora has a multi-billion dollar opportunity ahead of it. And it needs a larger sales force to grab it. Here’s where Pandora stands today.

On the local advertising front, we added two local markets in the first quarter and three additional that have come on in April, for a total of 37 local markets where we now have a sales presence. We also employ an inside sales team of about 40 people to cultivate local ad revenue in the remaining 239 markets. Along with this growth, our strategy to integrate Pandora into the measurements and metrics of the buying platforms used by local radio ad buyers continues to gain momentum.

To compete even more effectively in the local markets for advertising, Pandora needs to “take the word to the streets,” which means more sales staff armed with the information that shows Pandora can meet customers needs more effectively than terrestrial radio. Fortunately, management has made significant progress with its data infrastructure……

…As I have said in the past, it all boils down to making sure than advertisers get the best return on investment they can. Armed with the listening, demographic, and targeting information, Pandora offers potential advertisers more than terrestrial radio. And it can measure responses to the ads so customers can see the results more clearly.

I need to take you through the income statement quickly to show you exactly what all of this means.

On a GAAP basis, Pandora generated $194.3 million in revenue this quarter: $140.6 million in advertising revenue and $53.7 million in subscription revenue. Pandora spent $123.3 million to deliver the music, generating a gross margin of 36.5%. Last year, gross margin was 16.9%. That is a huge increase. For all of the people that knock Pandora’s business model as unprofitable (which it still is) cannot see the leverage the company actually has at its disposal. As ad volumes and prices increase and per song cost stay pretty fixed, Pandora will continue to see margins expand.

And going back to management’s guidance about investing to build out its sales force, we see those investments driving up its operating expenses. But even operating costs jumping from $58.1 million to $100.1 million, its operating loss is getting smaller. So, over time, as Pandora grabs more and more mobile ad dollars as its disrupts terrestrial radio, the losses will turn into profit. When that happens will depend on management’s investment decisions, and I believe they are making the right decision to invest heavily today in order to grow its lead.

The Foolish bottom line
Pandora has the platform (music), the brand, and the infrastructure (measurement technologies) in place to stay at the top of Internet radio mountain. Pandora continues to attract listeners and advertisers, particularly on mobile, which is set to be a $90 billion industry by 2018. We’re seeing the company generate considerable leverage in its business, as its gross margin increased from 17% to 36% this quarter, with a great combination of ad and subscription revenue. And the company is taking those incremental gross margin dollars and reinvesting them to building its local sales force in order to continue to capture more of the $15 billion terrestrial radio ad market. It’s going to take some time, and there will likely be more bumps along the way, but Pandora continues to be the innovator and the disruptor in radio and an excellent long-term investment opportunity.

And another brilliant post from TMFHumbleServant

I don’t think I would say that the market got it 180 degrees wrong. I will say that the market has a different time frame the stock. I think the sell off was a combination of missing revenue estimates, weak guidance for next quarter, and the negativity currently in the market place. So, based on its short term view, the market may have it correct.

However, the longer I look out, the more good things I see. And if the company can execute, the market will see them, too. :slight_smile:

Your comments and questions about auto usage are spot on. Listening in cars is very important to Pandora and to its advertisers. Here’s what management said about autos in its prepared remarks and in answering a question about the topics.

Prepared remarks

Additionally, we continue to expand Pandora’s availability wherever consumers want to listen with a focus on extending access and usage in autos and consumer electronic devices. As an example of our progress, Pandora’s now available in 10 out of 10 of the best-selling passenger vehicles, and we now have more than 5 million unique users activating Pandora through all of our native automotive integrations. All of this has contributed to our increasing market share. According to our estimates, which include third-party data, our share of total US radio listening increased from 8.1% a year ago to 9.1% at the end of March.

From the Q&A

Unidentified Participant - - Analyst

Hi, guys, it’s Kevin on for Mark. I believe you guys started advertising in connected cars during Q1. Any color on how this impacted Q1 results, or is it just still too early to be material? Thank you.

Brian McAndrews - Pandora Media Inc - Chairman, President, CEO

So we did start in January to serve advertising in connected cars that now 5 million activations that we’ve seen cumulative among connected, these are in- dash integrations. Those were sold specifically to national advertisers out the gate, something we talked about in our last call. We didn’t give a specific dollar amount, but we essentially sold out that inventory effectively for millions of dollars, it was a very successful campaign.

Advertisers really value being inside the automobile environment. It’s as a captive environment. It’s something they know well from a radio perspective. The major brands that started launch with us and that were BP and Ford and State Farm, Taco Bell, people who know the national radio market extremely well, and we’re excited about that opportunity.

A few quarters ago, the CEO told a story about how he doesn’t use the radio in his car anymore. He hooks his phone to the sound system through Bluetooth (just like my daughter) and therefore has the music he wants. Plus, with location info coming from the phone, Pandora knows where he is.

Pandora continues to go after the auto opportunity and the company continues to make excellent strides.

I hope that helps.

Fool on!

Dave