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Pandora Sings a Happy Tune as Subscription Revenue Accelerates

By Steve Symington - Feb 22, 2018 at 9:00AM

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The music streaming leader ended 2017 on a high note. Here's what investors need to know.

Pandora Media (P) announced strong fourth-quarter 2017 results on Wednesday after the market closed, detailing significantly better-than-expected revenue and profitability as listeners continued to embrace its newest paid subscription services.

With shares up nearly 10% in after-hours trading -- more than reversing an 8.7% decline during Wednesday's regular session ahead of the announcement -- let's turn to down the volume to get a better idea of what drove the music streaming specialist as it capped 2017, as well as what investors can expect in the months ahead.

Smiling young woman with white headphones on while looking at her smartphone


Pandora Media results: The raw numbers


Q4 2017

Q4 2016

Year-Over-Year Growth


$395.3 million

$392.6 million


GAAP net income (loss) available to common stockholders

($52.1 million)

($90.0 million)


GAAP net income (loss) available to common stockholders





What happened with Pandora Media this quarter?

  • Adjusted EBITDA was $5.8 million, compared to an EBITDA loss of $30.4 million in last year's fourth quarter, and well above guidance for an adjusted EBITDA loss of $15 million to $5 million. 
  • Revenue also arrived ahead of guidance, which called for a range of $365 million to $380 million.
  • On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and divestment expenses, Pandora's net loss was $51.9 million, or $0.21 per share.
  • Excluding sales from Ticketfly (which was divested late last year) and the recent winding down of operations in Australia and New Zealand (ANZ), revenue would have climbed 7% year over year.
  • Paid Pandora Plus and Pandora Premium subscribers increased to 5.48 million, up from 5.19 million last quarter and good for 25% year-over-year growth.
  • Subscription revenue jumped 63% year over year, to $97.7 million. Average revenue per paid subscriber (ARPU) went up to $6.08, up from $5.58 last quarter and $4.73 in the same year-ago period.
  • Advertising revenue slipped 4.4% year over year (excluding ANZ) to $297.7 million -- a better-than-expected result given lower listener hours and significant political ad spending in last year's fourth quarter.
  • Total listener hours tumbled 6.5% year over year to 5.03 billion. But ad RPMs (revenue per thousand listener hours) rose 12% year over year to $75.65 -- a new company record.
  • Active listeners increased to 74.7 million at the end of the quarter, up from 73.7 million last quarter.
  • Ended the year with $500.8 million in cash and investments, up slightly from last quarter.

What management had to say

CEO Roger Lynch said:

Digital audio is on the verge of massive growth-music consumption is increasing, podcasts are gaining popularity and voice-activated devices are quickly becoming mainstream. Just like video, audio is transitioning from a one-to-many broadcast experience to a one-to-one model with personalization at the core. Pandora's scale, listener engagement and data position us well to capitalize on these trends. From launching on-demand for our ad-supported listeners to expanding multiple device partnerships in the last quarter alone, we're building a strong foundation for audience growth and improved monetization. These efforts will enable us to strengthen business fundamentals and reinvigorate Pandora in 2018.

Looking forward

During the subsequent conference call, Pandora management noted that, due to "a number of moving pieces" in the business this year -- including timing of ad tech developments and marketing changes, label negotiations, new content launches, new distribution partnerships, and cost-efficiency initiatives -- they're opting not to provide specific full-year financial guidance at this stage. 

In the meantime, however, Pandora told investors to expect first-quarter revenue in the range of $295 million to $305 million, representing year-over-year growth of roughly 5% at the midpoint adjusted for Ticketfly and ANZ. That's below consensus estimates for roughly $323 million, but Pandora explained that many of its growth initiatives remain in their "early stages, and their impact will build over the course of 2018." This also assumes continued advertising revenue headwinds are more than offset by momentum in subscription growth.

Trending toward the bottom line, Pandora expects adjusted EBITDA in the first quarter to range from a loss of $100 million to a loss of $90 million. Looking further out, however, the company predicts "significant" sequential and year-over-year improvements in adjusted EBITDA beginning in the second quarter.

Of course, Pandora has made a habit of underpromising and overdelivering. But even then, for investors willing to look past the first quarter and bet on the sustained success of Pandora's subscription services, the eventual turnaround of its advertising business, and the continued implementation of its cost-saving initiatives, I think this report has provided plenty of reasons to be excited for the future.

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