A big test awaits Pandora (NYSE:P) and its investors next week when the music streaming pioneer steps up to post its latest financial results. Pandora will reveal its first-quarter performance after Monday's market close, and there's a lot riding on its numbers and what it has to say.
Wall Street isn't holding out for much. Analysts see revenue growing a mere 7% to $318.5 million, a rough prognosis that if it holds up will be Pandora's first period of single-digit year-over-year growth on the top line. There's even less optimism at the other end of the income statement, where all of the 30 major analysts putting out forecasts see Pandora's quarterly deficit widening from the $0.20 a share it posted a year earlier. The consensus here calls for Pandora to check in with an adjusted deficit of $0.34 a share, its largest quarterly deficit in years.
Singing a new tune
Pandora's popularity has been plateauing for some time. There were 81 million active listeners at the end of 2016, essentially flat with the 81.1 million active listeners it was entertaining a year earlier. Ad revenue was growing faster as Pandora was successful in getting marketers to spend more to reach its song-happy mobile audience, explaining why Pandora was still able to log in with double-digit revenue growth even though subscriber growth has been stagnant for a couple of years.
Now that the expansion of ad revenue appears to be slowing Pandora is shifting its attention to folks that are willing to pay for its platform. Most of the people firing up Pandora's app are freeloaders, but we've seen premium subscribers grow 12% to 4.39 million over the past year.
Premium accounts is the key ingredient to returning Pandora back to profitability, but it's been a struggle in a world where Spotify and other tech-bankrolled services let folks pick exactly the songs that they want to hear. Pandora finally threw its hat into that ring in March, adding on-demand streaming to its arsenal by rolling out Pandora Premium, a platform that's priced in line with Spotify at $9.99 a month and twice as much as its ad-free Pandora Plus offering.
Investors will naturally gravitate to the reported financials and usage metrics on Monday afternoon, but the real driver to the shares later in the week will be any color that it can provide on Pandora Premium and premium subscriptions in general.
Pandora will also be asked about buyout speculation and a New York Post report last month claiming that the former dot-com darling was in talks with private equity firms to raise money. However, it seems as if the Sirius XM Radio (NASDAQ:SIRI) ship has sailed. It was widely reported last summer that Sirius XM offered $15 a share to buy the music streaming giant, but Pandora was holding out for more. Sirius XM has mentioned interest in Pandora -- at the right price -- a few times since then, but it's not likely to happen. There's probably a reason why Pandora is reportedly hitting up private equity firms for financial flexibility.
Monday's financial results out of Pandora will be interesting, but the real stock-moving event will be anything that it discloses during the conference call later that afternoon.