Pandora Media's (NYSE:P) second-quarter earnings report is due out after the market closes on July 31. This quarter's report and conference call should be of interest to investors as it is the first report by the company after accepting $480 million in funding from Sirius XM, selling its ticketing service, Ticketfly, and the departure of co-founder and CEO Time Westergren.
Here are four things to watch.
1. By the numbers
The company gave guidance at the end of the last quarter stating its revenue for the second quarter would be $360 million to $375 million. At the midpoint, that would equate to 7% growth year-over-year and 16% growth relative to the first quarter's $316 million in revenue.
The $200 million sale of Ticketfly to Eventbrite is not expected to close until the third quarter so the revenue guidance is still valid and was reaffirmed by the company on June 9.
Keep an eye out for growth in advertising revenue. Last quarter, ad revenue was essentially flat ($223 million vs. $220 million) on a year-over-year basis. The company stated that guidance for the second quarter reflected "material year-over-year advertising growth resulting from seasonality and the first period during which Pandora Premium is broadly available." Pandora Premium is a paid, ad-free subscription starting at $9.99 a month. Pandora Plus is $4.99 a month and there is a free, ad-supported level.
Ad revenue is going to be a key number to focus on this quarter and going forward due to Sirius XM, as a potential 16% owner of the company, wanting Pandora to focus on its ad-supported product.
At the end of the first quarter, Pandora had 76.7 million active listeners, which was down from 79.4 million in the year-ago period. Investors will be interested to see if the number grows. The company is not profitable so there is no earnings per share guidance.
2. CEO search and new chairman
It will be interesting to see if the company gives an update on its search for a new CEO. Westergren left the company at the end of June, saying the company was poised for success. Earlier in the month, Pandora announced that Sirius XM would pick up three board seats and the chairman's position as part of its deal to invest $480 million. Investors will be looking to hear about who is taking those board seats and who will be the chairman.
3. Pandora's strategy
Since last year's analyst day, the company had been quite excited to tout its new music-on-demand service, Pandora Premium, and its bright future in the subscription music streaming business. That all changed on June 9, with Sirius XM buying in. The financial reality that caused the company to reach out for the financial lifeline that Sirius XM offered, coupled with the sale of Ticketfly, are symptoms of the hard economic lesson that a company that has never made any money is learning.
The fact is, on-demand music is expensive and may not be the optimal business strategy for Pandora.
CFO Naveen Chopra spoke at an analyst conference after being named interim CEO and was clear that the company would go back to its roots and focus on its ad-supported music platform and offer its on-demand subscription service as an option as opposed to a preferred method of music distribution.
... our strategy is really nail the passive listening experience, make sure that the people who want on-demand, we are able to provide it. But I don't think we necessarily need to be going into kind of hand-to-hand combat with all of those [streaming-music] players as though we were entirely dependent on the subscription business. Because we've got this $1 billion advertising business that has all sorts of growth potential...
This strategy falls much more in line with Sirius XM's belief that Pandora's original ad-supported product is a much better business model due to the lower cost the company pays for the music.
Investors may hear more about this pivot when the company reports.
4. New initiatives Foursquare and Pandora Premium
The company recently announced an agreement with Foursquare, a company that tracks offline shopping through its location-based apps. The results from test campaigns indicated advertisers on Pandora could expect to see up to a 7.5% increase in incremental store visits. It will be interesting to see of management adds any more color around this partnership as it could be a step in the right direction to increasing ad spend on the platform.
Then there is the brand-new on demand music service Pandora Premium. Last quarter the company trumpeted its introduction as the cornerstone of its product offering. Now it has been relegated to a lesser role. Investors will be waiting to see how management explains where the product fits in the company's new strategy and numbers around paid subscriptions to date.
There's a lot for investors to watch for when Pandora next reports.