Pandora Media Crushes Estimates on Subscription Growth and Improving Ad Trends

Pandora Media (P +0.00%) announced significantly better-than-expected first-quarter 2018 results on Thursday after the market closed, and shares of the music-streaming specialist are up more than 21% in Friday's early trading in response.

Let's take a closer look at what Pandora accomplished over the past few months, then at what investors should be watching as the beat goes on.

IMAGE SOURCE: PANDORA MEDIA.

Pandora Media results: The raw numbers

DATA SOURCE: PANDORA MEDIA, INC. 

What happened with Pandora Media this quarter?

• Excluding Pandora's sale of Ticketfly (which closed last September) and the wind-down of its Australia/New Zealand (ANZ) operations (which completed last July), revenue was up 12% year over year.
• Revenue was also well above Pandora's latest guidance, provided last quarter, which called for a range of $295 million to $305 million.
• On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and divestment expenses, Pandora's net loss was $68.6 million, or $0.27 per share -- far ahead of the $0.38-per-share loss most investors were anticipating.
• Adjusted EBITDA was a loss of $73.3 million, compared to a loss of $71.3 million in last year's first quarter, and comfortably ahead of guidance for an adjusted EBITDA loss in the range of $100 million to $90 million.
• Paid Pandora Plus and Pandora Premium subscribers increased 19% year over year to 5.63 million, up from 5.48 million last quarter.
• Subscription revenue grew 63% year over year (excluding Ticketfly and ANZ) to $104.7 million, and average revenue per paid user increased 32.4% to $6.30.
• Advertising revenue declined 3% year over year (excluding ANZ) to $214.6 million, exceeding expectations thanks to a combination of better-than-expected in-quarter bookings and a "significant uptick" in sales from non-guaranteed channels -- which management notes are difficult to forecast -- like sponsored listening and cost-per-view (CPV) video ads.
• Active listeners were 72.3 million at the end of the quarter, down from 74.7 million last quarter.
• Total listener hours fell 4.8% year over year to 4.96 billion, while advertising RPM (revenue per thousand listener hours) increased 9.1% to $55.52.
• Ended the quarter with cash and investments of $544.4 million, up from $500.8 million three months earlier.
• Pandora's acquisition of digital audio ad-tech company AdsWizz, which was announced in late March, is expected to close in mid-May.

What management had to say

Pandora CEO Roger Lynch stated:

Music streaming and digital audio continue to see massive growth, and this quarter we took key steps to position Pandora to capture this significant opportunity. We improved audience metrics -- in part by increasing usage of Premium Access, which gives ad-supported listeners the ability to enjoy Pandora Premium after viewing a 15-second ad. We also accelerated our ad-tech roadmap with the acquisition of AdsWizz, and launched exciting new product features like personalized playlists. Looking ahead, Pandora is exactly where we want to be: at the center of a growing market with huge potential.

Looking forward

During the subsequent conference call, Pandora management reiterated its previous assertion that strategic growth initiatives will build momentum over the course of the year.

"Although we made notable progress this past quarter," added Pandora CFO Naveen Chopra, "we are still in the early stages of our turnaround."

Pandora expects revenue in the second quarter to be in the range of $360 million to $375 million, good for 7% year-over-year growth at the midpoint excluding ANZ and Ticketfly. It also called for second-quarter adjusted EBITDA in the range of a loss of $45 million to a loss of $30 million, for an improvement of $5 million compared to the same year-ago period at the midpoint.

In the end -- and as evidenced by Pandora's big pop today -- this impressive progress is music to Pandora investors' ears. As Pandora continues to stabilize its business and move toward its long-term goal of sustained profitability, I expect the stock price will inevitably respond in kind.