Pandora Q4 earnings: Ad revenue balanced by subscription growth

“I’ve now been at Pandora for almost five months,” CEO Roger Lynch stated to open yesterday’s Q4 earnings call. It was the first earning summary for the still-new chief executive with a full quarter of leadership behind him. “Having had a chance to dig in, I’m even more excited about the opportunity.”

Lynch left the financial bullet points to his CFO, Naveen Chopra. The main points are below. (Comparisons to Q3 were not necessarily made in yesterday’s earnings call, supplied here by RAIN.)

  • Q4 revenue was $396M, a 7% year-over-year growth. In Q3, the top-line revenue number was $377M.
  • Net loss was $44.7-million, compared to $90-million in Q4 2016.
  • Revenue per thousand listening hours (RPM) was $75.65, an all-time high. This key metric measures the efficiency of Pandora’s ad-supported service revenue.
  • Pandora served 5.48-million monthly subscribers in Q4, up from 5.19-million in Q3.
  • Active listeners numbered 74.7-million in Q4, listening to a little over five-billion hours of audio.
  • Cash and investments held steady from Q3 at about $500-million.

Lynch and Chopra emphasized the cash gain of recent layoffs, accounted as $45-million, and pledged to invest that money into new products. There was a notable smart-spending attitude in the call. “I’m confident we’re taking the right steps to reinvigorate Pandora,” Roger Lynch said.

The subscription services, Plus and Premium, received more attention and evangelical love than we expected. Pandora has been all over the map in its public strategizing about Premium, which was launched with fanfare and great expectations in early 2017, after a glitzy media rollout the previous December. The $10/month on-demand service was built at substantial expense of money and time, to meet the growing consumer appetite for interactive music listening and collection. Then, when Sirius XM acquired a slice of the company and its board, Premium was publicly put on the back burner — in maintenance mode, was our interpretation.

In yesterday’s call the ad-supported business was clearly the main act, but there was significant discussion of Premium solving a retention problem of people wanting more interactivity on the radio side. Roger Lynch noted that most common complaint on the ad-supported side was that listeners could not call up a specific song.

Pandora Premium isn’t the only solution, though — Pandora Access was also trumpeted during this call. Pandora Access is an ad product. It works by encouraging listeners to opt in to advertising (a video ad), in exchange for a time window of Premium-like service. The music licensing is tricky in this scenario, according to Chopra who answered an investor question about that, but having that high-CPM revenue at the front gate makes a good outcome for Pandora.

We’ll have more on the Q&A portion of the Q4 earnings call — typically the most interesting part after the basic financials.

Pandora stock is trading down nearly eight percentage points as of this post.

Brad Hill