Pandora Earnings: Steady audience metrics disappoint investors

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Pandora‘s workmanlike earnings call conveyed the impression of offhand dominance in the field, including a statement of profitability (“We’re operating the company profitably”). But after-hours investors sent the stock careening down a steep slope, off 12% in early evening trading.

The company met financial expectations, but lowered guidance for the current quarter (Jul – Sep). Perhaps more influential to trigger-happy investors were the audience metrics, which showed no audience growth. There was expansion of listening hours, however, emphasized by CEO Brian McAndrews as the more important key in the revenue equation.

For the second quarter (Apr – Jun), Pandora streamed 5.05-billion hours of music, breaking the 5B-hour ceiling for the first time in a quarter. that metric represents a 29% year-over-year improvement, and a 5% gain over the previous quarter.

The headline metric most scrutinized as a barometer of Pandora’s competitive direction is the number of active users per month. In June, that number was 76.4-million, slightly down from the May benchmark of 77-million. An unusual measurement was disclosed during the audience metrics discussion: Number of unique users on Fridays in June. If that sounds like a Jeopardy challenge, the correct answer is, What is 25-million?

Brian McAndrews elaborated on Pandora’s market share, which is always a controversial metric. For June, Pandora’s private calculation gives it 8.9% share of “total U.S. radio listening.” Pandora observers are familiar with that measurement, and the disputes launched at it from the broadcast arena. (In May it was 9.13%.)

McAndrews mentioned other audience-share studies by Edison Research, comScore, and Triton Digital — all to support Pandora’s market leadership. Citing the “Share of Ear” study from Edison, McAndrews noted that it put Pandora at 9.2% share.

Uneasiness with lack of top-line audience growth might have been apparent in the Q&A portion of the earnings call. The question of international expansion arose repeatedly, with analysts prying into Pandora’s plan and timetable. Implacable as ever on this topic, the company CEO acknowledged that it’s a big world with territorial opportunities, but nothing to announce. Analysts have that answer memorized.

Michael Graham of Canaccord Genuity wondered whether Pandora might devote more marketing muscle to activate millions of registered users who are not monthly active users. McAndrews said the second half of the year would see more marketing activity, but brought it back to listener hours: “We feel we have robust uniques, and would like it to grow, but also are intensely interesed in listening hours growth.”

One analyst asked about competitors in the local advertising space, presumably not including terrestrial radio. McAndrews was the soul of confidence: “We’re always aware of the competitive situation. We focus more on our strengths. There are not a lot of players at scale. Our share of Internet radio is 77%. [He gets that number from Triton Digital.] We are ahead of everybody in building out a sales force. A lot of the noise in streaming music space involves subscription models. That’s not where our focus is, or our core strength, or our big opportunity. We’re well ahead of other players.”

Brad Hill