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Pandora Delivers Accelerated Growth, and Looks to Its Future With Sirius XM

By Steve Symington – Updated Nov 6, 2018 at 4:07PM

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The music streaming leader had another strong quarter ahead of its merger with the satellite music giant.

Pandora Media (P) announced better-than-expected results for the third quarter of 2018 on Monday after the market closed. The streaming music specialist highlighted yet another acceleration in its top-line growth, driven by paid subscriber additions and a return to growth from its core advertising business. And it provided the latest details regarding its impending acquisition by Sirius XM (SIRI -1.02%).

With the stock up around 3.6% on Tuesday as of this writing -- albeit more likely driven by the simultaneous rise in Sirius XM shares -- let's turn down the volume to get a better idea of what drove Pandora this quarter, and what shareholders can expect in the coming months.

Colorful collage of Pandora logos with artists singing

Image source: Pandora Media.

Pandora Media results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$417.6 million

$378.6 million

10.3%

GAAP net income (loss) available to common stockholders

($63.7 million)

($66.2 million)

N/A

GAAP net income (loss) per share available to common stockholders

($0.27)

($0.34)

N/A

Data source: Pandora Media Inc. 

What happened with Pandora Media this quarter?

  • Revenue climbed 16% year over year excluding last year's sale of Ticketfly and the wind-down of its Australia/New Zealand operations (and including AdsWizz, acquired last quarter).
  • Revenue was also far above the high end of Pandora's guidance provided in August, which called for a range of $390 million to $405 million.
  • Adjusted EBITDA was a loss of $3.9 million, above guidance for a loss in the range of $25 million to $10 million (and an improvement over a $5.3 million loss in the same year-ago period).
  • Adjusted for items like stock-based compensation and restructuring expenses, Pandora's (non-GAAP) net loss was $15.5 million, or $0.06 per share, easily better than consensus estimates for an adjusted loss of $0.11 per share.
  • Pandora added 784,000 paid Pandora Plus and Pandora Premium subscribers this quarter, bringing its total to roughly 6.8 million.
  • Subscription revenue grew 49% year over year to $125.8 million.
  • Advertising revenue grew 6% to $291.9 million, marking its first year-over-year increase since this time last year.
  • Advertising RPM (or revenue per thousand listener-hours) climbed 11% year over year to $77.83, an all-time high for Pandora.
  • Active users were 68.8 million at the end of the quarter, down sequentially from 71.4 million last quarter. Total listener hours were 4.81 billion.
  • Pandora struck a new partnership to serve as SoundCloud's exclusive U.S. advertising and sales representation, increasing its advertising reach to over 100 million listeners in the United States.
  • In September, Pandora announced a definitive agreement to be acquired by Sirius XM in an all-stock transaction valued at $3.5 billion:
    • Subsequently late last month, Pandora completed the 30-day "go shop" process per the terms of that agreement, under which it was allowed to actively consider competitive deals from other parties, without any superior offers.
    • As such, Pandora continues to expect its acquisition by Sirius XM to close in the first quarter of 2019. At that time, Pandora investors will receive 1.44 newly issued Sirius XM shares for each Pandora share they own.

What management had to say

Pandora CEO Roger Lynch stated:

I'm proud of the progress we've made over the past year to reinvigorate Pandora. A year ago, we committed to drive listener engagement through product innovation, expand our content, and increase distribution partnerships. We also prioritized making our ad tech capabilities a strategic advantage. And we executed. We launched new products like Premium Access, delivering on-demand functionality and improved listener engagement in our ad-supported tier; forged partnerships with leading brands such as T-Mobile, AT&T, Comcast, and Snap; and solidified our global leadership in digital audio advertising with the acquisition of AdsWizz and the launch of our programmatic audio marketplace. Looking ahead, I couldn't be more excited about Pandora joining forces with SiriusXM. A combined Pandora-SiriusXM will create the world's largest audio entertainment company, bringing Pandora additional resources to accelerate growth and building on SiriusXM's leadership in the car, subscription expertise, and unique content.

Looking forward

In light of its pending acquisition by Sirius XM, Pandora Media did not hold a subsequent conference call with analysts or provide specific forward financial guidance. But CFO Naveen Chopra did add that with improvements in operational efficiency and monetization, the company is "on track to significantly improve cash flow and adjusted EBITDA next year and beyond."

In the end, this was as solid a quarter as any Pandora investor could have asked for. And with "only" the approval of regulators and stockholders standing in the way of an early 2019 closure of its acquisition, that's great news for both Sirius XM investors and Pandora shareholders who plan on holding on in the meantime.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$5.81 (-1.02%) $0.06
Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$132.33 (-2.01%) $-2.72
AT&T Inc. Stock Quote
AT&T Inc.
T
$16.01 (-1.42%) $0.23
Snap Inc. Stock Quote
Snap Inc.
SNAP
$10.32 (-1.34%) $0.14

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