Pandora Media (NYSE:P) has been on a tear this year, with investors seeing a massive 181% increase on the stock's price year to date. Obviously the company is doing something right in the music-streaming space, so let's take a look at what the company achieved over the past 12 months that's resonating so well with investors.
Part of Pandora's success has come from its ever-increasing customer base and radio listening market share. In October of last year Pandora held 6.61% of the radio market, but has bumped that up to 8.44% in just the last month. What's even more impressive than Pandora's increase in listening market share is that it accomplished this despite newcomer Apple joining the music-streaming game in September.
Apple temporarily hurt Pandora's active listener numbers, but the company has since bounced back. At the end of last month Pandora had 72.4 million active listeners, up from 62.4 million toward the end of 2012. In addition to that, Pandora has increased its monthly listening hours to 1.47 billion in October of this year, an 18% increase from the same time last year. The bump in listening hours comes partly from Pandora ditching its 40-hour-listening limit for free mobile users.
Leadership change brings higher stock price
One thing that's also helped increase the company's stock this year has been the CEO change from Joe Kennedy to Brian McAndrews in September. The former Microsoft executive and aQuantive CEO has marketing and advertising experience, which will help the company as it continues to grow revenue from advertising dollars.
After McAndrews was hired, Pandora's founder and chief strategy officer Tim Westergren said, "We were very strategic about finding the right person -- Brian is that person. No one better understands the intersection of technology and advertising, which he clearly demonstrated during aQuantive's meteoric rise."
The company has been in battle with some artists, songwriters, and labels over royalty fees, and just won a court decision in September over royalty fees to songwriters. Adding a leader like McAndrews should continue to pay off as he uses his advertising know-how to figure out a balance between paying out royalty fees and adding advertising revenue to cover content acquisition costs.
More advertising, more expansion
Back in September, Pandora had a stock offering to raise $400 million for international expansion. The move came just before Spotify expanded into 20 new markets and announced a new free mobile plan for users that could put some additional pressure on Pandora. Spotify will allow free radio streaming for mobile users similar to Pandora's current free mobile plan. So far, Pandora has kept Spotify at bay, and the additional cash may help the company keep it that way.
Despite competition, Pandora has increased advertising revenue, which has helped push the stock price up this year as well. In its most recent quarter, the company's mobile-advertising revenue hit almost $105 million, which was down sequentially but an increase of 58% from the same time last year. Its total advertising revenue was $144.3 million, which is up 36% year over year.
Going into 2014, investors should watch to see if Pandora can continue increasing its advertising revenue at a faster pace than content-acquisition costs. The company still hasn't hit profitability yet and it'll need more advertising revenue to do so.
With Spotify and iTunes Radio in the music-streaming fight for the long haul, investors would be wise to keep tabs on Pandora's active listener base and streaming hours as Spotify expands into new markets and Apple continues to push its service.
For now, investors who've stayed true to Pandora this year have been handsomely rewarded, but in a space with so many strong competitors, investors need to see Pandora continually make gains in advertising and work toward a profitable subscription model. With ongoing content-acquisition costs and royalty battles, some solid profits would give investors more hope that the stock gains are here to stay.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.