What happened

Shares of Pandora Media Inc. (NYSE:P) jumped 21.2% on Friday after the music-streaming specialist announced better-than-expected first-quarter 2018 results.

More specifically, Pandora's revenue rose 1% year over year to $319.2 million, and it translated to an adjusted net loss of $68.6 million, or $0.27 per share. That might not sound encouraging at first, but Pandora's revenue arrived far above its own guidance for a range of $295 million to $305 million. And investors were anticipating a significantly wider adjusted net loss of $0.38 per share.

Girl smiling while holding her smartphone and wearing headphones


So what

To be fair, Pandora's revenue would have climbed 12% had it not been for last year's sale of Ticketfly and the wind-down of its Australia/New Zealand (ANZ) business.

But digging deeper, Pandora also revealed that paid subscribers of its Pandora Plus and Pandora Premium services -- which cost $4.99 per month and $9.99 per month, respectively -- grew 19% year over year to 5.63 million. That drove a 63% increase in subscription revenue to $104.7 million, which now represents nearly a third of Pandora's total sales. Meanwhile, advertising revenue comprised the rest, falling 3% (excluding ANZ) to $214.6 million.

Pandora CEO Roger Lynch added that Pandora enjoyed improved audience metrics, partly driven by higher usage of its Premium Access feature, which offers ad-supported listeners the option to temporarily try Pandora Premium by watching a 15-second ad.

Now what

Management also reminded investors that many of Pandora's strategic growth initiatives -- which were put into place when Lynch took the helm late last year -- are still in their early stages, and teased that we should see them build momentum "over the course of 2018 and beyond."

In the meantime, for the second quarter of 2018, Pandora told investors to expect revenue of $360 million to $375 million, or 7% year-over-year growth at the midpoint excluding ANZ and Ticketfly.

Consensus estimates technically predicted second-quarter sales near the high end of that range. But given Pandora's habit of under-promising and over-delivering, and with the potential for its strategic growth initiatives to gain steam in the coming quarters, I think investors are right to so aggressively bid up Pandora stock today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.