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Pandora (NYSE: P ) is starting to shake its heavy users, and that could be problematic for the leading music streaming service.
Shares of Pandora slipped 4% yesterday, held back from the upbeat market after announcing disappointing metrics for the month of June.
Listener hours at Pandora clocked in at 1.25 billion for the month, a sequential dip from the 1.35 billion registered in May. Is there a seasonal dip in usage? Absolutely. School's out. Commuters go on vacation. Folks make the most of the warm weather by heading outside sans earbuds.
However, we can compare Pandora's sequential performance last summer. Listener hours only took a 2% hit last year by going from 1.1 billion in May to 1.08 billion in June.
It wasn't just about the 7% sequential slide this time around. Pandora's share of the total U.S. radio listening market shrank from 7.29% in May to 7.04% in June.
The trend gets even more problematic when we divide listener hours by the number of active users. The typical Pandora listener tuned in for 19.81 hours of content in June of last year, but that dropped all the way to 17.58 hours this year.
Some argue that this is a good thing. Pandora is merely shaking free its heaviest freeloaders after capping free mobile usage at 40 hours back in February. To the service's credit, the move did help boost its number of premium subscribers to 2.5 million by the end of that quarter. The problem here is if Pandora is shedding more than its biggest pro bono data hogs.
"Pandora's building a scapegoat," I argued at the time. "What if Pandora is doing this on purpose? What if it's timing the increase to mask the sequential dip? Pandora can always point to the new limit as the perfect excuse."
This comes at an interesting time. Apple (NASDAQ: AAPL ) has already gone public with plans to incorporate the Pandora-like iTunes Radio in the next incarnation of iTunes.
Apple's arrival won't be the end of Pandora. It's not as if 71.1 million people are going to flock to what will likely be a limited platform given the iTunes requirement. However, Apple has lined up licensing deals with all of the major labels, and it's even pricing its ad-free product at a discount to Pandora's $36-a-year commercial-zapping Pandora One offering.
Pandora was riding high before yesterday's slip. The shares hit a new two-year high on Monday after closing higher in 10 of the past 11 trading days.
All will naturally be forgiven if Pandora's second quarter -- due out toward the end of next month -- is solid. If Pandora's generating strong revenue growth and returns to profitability as analysts expect, making more money by serving fewer tunes will be widely applauded.
Despite Pandora notching its highest close in two years earlier this week, things are never that easy.
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