What to Expect When Pandora Media Inc Reports Earnings

Pandora Media (P) will report its first quarter earnings on Thursday in its first full quarter since realigning its fiscal year with the calendar year. The leader in Internet radio has held up well against strong competition from the likes of Apple (AAPL -0.13%) and Google (GOOGL -3.18%), as well as private companies Beats Electronics, Spotify, and Rdio.

In the face of increased competition (and a larger user base), Pandora's user growth has slowed significantly in recent months. For the months of January, February, and March, Pandora increased listener hours 13%, 9%, and 14%, respectively. That's a decline from 49%, 42%, and 40% growth in those months, respectively, in 2013. With the growth decline in listener hours, Pandora's management decided to stop releasing monthly metrics.

Let's see what we can expect from Pandora on Thursday.

Stats on Pandora Media

Source: Yahoo! Finance and Pandora.

Don't put this track on repeat
Pandora provided weak guidance for the company's first quarter when it reported its results from the November-December stub period. Where analysts originally expected a loss of $0.12 per share, Pandora guided for a loss of $0.14 to $0.16 per share. As a result, the consensus estimate moved lower along with the stock price.

Revenue guidance was in line, however, with management expecting $170 million to $176 million. Analysts had originally expected $172.8 million. Still, it wasn't enough to stop the stock from plunging over 10% on the poor earnings outlook.

The relatively strong growth in listener hours in March is a good indication the company will meet the mark on revenue. The weakness in active listeners, however, does not bode well overall. The company had an easier comparable for March because of the 40-hour mobile listening limit it imposed last year and later lifted. If active listeners don't continue growing, the company will have a much harder time growing revenue and earnings come September.

Growing competition
One factor dragging down growth in active listeners is the amount of new competition from big names like Apple and Google. Both companies launched music services last year and YouTube has morphed into the largest music streaming service.

Apple's launch of iTunes Radio back in September dinged Pandora initially. The company saw 1.8 million fewer visitors in October compared to September. Pandora bounced back, however, and so has its stock price. Nonetheless, iTunes Radio will be a thorn in its side as it tries to attract new listeners.

40% of Pandora's listeners use the service through an Apple device. This represents a huge opportunity for Apple to take further market share by funnelling its users toward its own app instead of competing apps like Pandora.

Meanwhile, Google launched its own premium music subscription service, and it plans to implement a YouTube music service that differentiates itself with music videos. The YouTube app is installed on nearly half the smartphones in the U.S., and Google could leverage the popularity of Android to drive users to its music service.

With the majority of Pandora's listening hours coming from mobile, these two smartphone giants present a serious threat to Pandora.

What to watch for
When Pandora reports, keep an eye on its mobile revenue per thousand listener hours, or RPM. This is probably the most important metric considering its listener base is increasingly mobile and advertising makes up about 80% of its revenue. Pandora launched in-car advertising in January to help increase its mobile RPM number, so look for color on that during the conference call.

The other 20%-or-so of revenue is made up from its subscription service, which Pandora recently raised prices on. Pandora's rates are now significantly higher than Apple's for a similar ad-free listening experience, but still lower than premium on-demand streaming services like Google Play Music or Spotify. Watch to see how this move affects its subscription revenue.