Pandora released its second-quarter earnings yesterday, splitting Wall Street bets. Pandora delivered red ink earnings of -26 cents per share, against expectation of -30 cents. Investors liked that, but didn’t like a missed revenue estimate. As always, a closer look at the balance sheet deepens context.
Gross revenue rose 15% to $343-million dollars over the Q1 earnings report, and 20% better than a year ago. At the same time, the cost of that revenue rose by 5%, to $217-million, quarter-over-quarter. That disparity — revenue growing faster than cost — brought in a rise in top-line profit growth of 40% (before operating expenses), to $126-million for the quarter.
The cost of music represented 81% of Pandora’s “cost of content” line in Q2. Much of that figure ($177-million) goes through SoundExchange to artists and labels, according to the statutory royalty system for webcasters regulated by the U.S. Copyright Royalty Board (CRB). The CRB raised that rate starting in January 1, a cost lift that for Pandora amounted to a 15% addition across the company’s free and subscription businesses.
On the revenue side, most of the income came from advertising, Pandora’s primary business. The advertising business line brought in $265-million, 20% more than in Q1.
A key metric in evaluating Pandora’s business progress from quarter to quarter is revenue per thousand listening hours (RPM). In Q1 that number was $56.56, a 13% rise from the first quarter, and also an uptick from Q2 of 2015. The RPM historically rises in the third and fourth quarters.