Pandora Media (P) announced stronger-than-expected second-quarter 2017 results on Monday after the market closed but followed by curiously reducing the top end of its previous full-year revenue guidance. While that might sound discouraging at first, Pandora management wants you to hear out their strategy for improving the long-term health of the music streaming platform.
Let's take a closer look, then, at how Pandora ended the first half of the year, as well as what investors can expect from the company in the coming quarters.
Image source: The Motley Fool.
Pandora Media results: The raw numbers
| Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$376.8 million |
$343.0 million |
9.9% |
|
GAAP net income (loss) available to common stockholders |
($289.7 million) |
($76.3 million) |
N/A |
|
GAAP net income (loss) available to common stockholders |
($1.20) |
($0.33) |
N/A |
Data source: Pandora Media, Inc.
What happened with Pandora Media this quarter?
- On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and restructuring expenses, Pandora's net loss was $50.1 million, or $0.21 per diluted share, compared to an adjusted net loss of $26.8 million, or $0.12 per share in the same year-ago period.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was a loss of $54.3 million, compared to an adjusted EBITDA loss of $25.1 million in last year's first quarter.
- By comparison, these results were near the high ends of Pandora's guidance provided in May, which called for revenue of $360 million to $375 million and an adjusted EBITDA loss of $65 million to $50 million.
- Advertising revenue climbed 4.9% year over year to $278.2 million, subscription revenue grew 25% to $68.9 million, and ticketing service revenue increased 30.6% to $29.7 million.
- Total listener hours declined 5.8% year over year to 5.22 billion. Similar to the first quarter, Pandora reminded that "listener hours were actively managed this quarter to optimize profitability in our ad-supported service."
- Active listeners were 76 million during the quarter, down from 78.1 million in the same year-ago period.
- Pandora had 4.86 million total subscribers at the end of the quarter, up from 4.71 million last quarter and an increase of 24% year over year.
- Ad revenue per 1,000 listener hours (RPMs) grew 24% year over year to $66.15.
- Average revenue per paid subscriber (ARPU) was $4.82, up from $4.76 last quarter. Licensing costs per paid subscriber (LPU) were $3.11, up from $2.96 last quarter.
- Ended the quarter with cash and investments of $227.6 million, up from $203 million at the end of Q1.
- Announced the conclusion of its strategic review, resulting in the following:
- a strategic investment from SiriusXM (SIRI 0.65%), which will purchase $480 million in newly-issued Series A convertible preferred stock of Pandora at $10.50 per share. That stake is equivalent to roughly 19% of Pandora's current outstanding shares, and 16% on an as-converted basis. The deal occurs in two stages: The first closed on June 9, 2017, and the second will close following expected regulatory approval in the fourth quarter. Pandora will use the funds to "make targeted investments and capitalize on opportunities to build on its position in the streaming radio business."
- a deal to sell TicketFly to Eventbrite for $200 million, expected to close in the third quarter.
- Announced on June 27, 2017, that Pandora founder and CEO Tim Westergren had decided to step down as CEO and from Pandora's board.
- Announced plans to wind down Pandora's New Zealand and Australia operations -- a region that was expected to have roughly 1.3 million active users at the end of 2017, but had immaterial contributions to Pandora's overall results.
What management had to say
Pandora CFO and interim CEO Naveen Chopra stated:
We have taken a number of steps to hone the company's strategy and position Pandora to continue to build audience and extend monetization through a combination of advertising and subscription revenue streams. In addition to exceeding our revenue expectations this quarter, we also announced several important strategic moves including a $480 million investment from Sirius XM, the sale of Ticketfly, and changes to our board and management team. We remain laser-focused on execution that attracts listeners and investments that drive the growth and monetization of our audience.
Looking forward
For the third quarter, Pandora expects revenue in the range of $370 million to $385 million -- good for growth of 14% at the midpoint, but below consensus estimates for third-quarter sales of $407.5 million -- including two months of TicketFly revenue. Trending toward the bottom line, Pandora expects third-quarter adjusted EBITDA in the range of $20 million to a loss of $5 million.
During the subsequent conference call, Chopra explained that, excluding TicketFly and the Australia/New Zealand operations, Pandora's previous guidance for 2017 revenue of $1.50 billion to $1.65 billion would have been roughly equivalent to $1.45 billion to $1.60 billion. With the second quarter now complete, however, Pandora is narrowing that guidance to a range of $1.45 billion to $1.50 billion.
"We are lowering the top end of the guidance range to reflect the fact that we are prioritizing the growth and retention of active users rather than aggressively pushing all users to subscriptions," Chopra explained. "[W]e believe this approach will optimize the overall health and value of our business."
That's fair enough. It's hard to blame Pandora for not wanting to chase growth for the sake of growth -- especially given the added financial flexibility it will enjoy once its TicketFly and SiriusXM deals are complete. Even if the market doesn't respond well to Pandora's revenue guidance reduction in the near term, I think the company is making the right moves to ensure its long-term success.
