Music streaming is increasingly popular among listeners, but that's a double-edged sword for Pandora (NYSE:P). Although more people are interested in its product, the Internet radio pioneer is facing more competition than ever. From big names, too. Apple (NASDAQ: AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) both threw their hats into the ring last year with a free direct competitor -- Apple iTunes Radio -- and a premium model -- Google Play Music All Access.

Meanwhile, Pandora's user base is not growing nearly as quickly as it once was, slowing from 33% growth last May to just 9% this year. Although the company will certainly be able to increase listener hours per user this quarter -- due to a since-lifted listening limit last year -- it's still spending heavily to better monetize those users.

Let's see what investors can expect from Pandora when it reports earnings.

Stats on Pandora

Analysts' EPS Estimate


Year-Ago EPS


Revenue Estimate

$218.81 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance and Pandora Media

Lowered expectations
Shares of Pandora were punished after the company's first quarter earnings. Despite beating estimates for the first quarter, analysts were not pleased with managements second quarter guidance. Since Pandora last reported earnings, the stock price is down 3.2%. Comparatively, the S&P 500 is up 5.6%.

For the second quarter, management guided for revenue in the range of $213 million to $218 million and earnings per share of $0.00 to $0.03. This prompted analysts to lower their expectations from $0.05 in earnings per share and revenue of $219.34 to where they stand today. Note that it's not uncommon for Pandora to provide relatively conservative guidance and come in on the high-end.

Growing ARPU
As listener growth declines, Pandora is working to increase its average revenue per user. It can do this in several ways: increasing average listener hours per user, increasing ad prices, and increasing ad loads.

In the first two months of the second quarter, Pandora increased total listeners 8% year over year from 9%. Listener hours, however, increased a more robust 30% year over year from 28%. The two prior period aren't exactly comparable, though, considering the 40-hour listening cap on mobile, which management has since lifted. Regardless, Pandora will see a revenue boost in the short-term due to the increase in listener hours. This isn't sustainable, though.

Pandora's long-term approach is to improve its ad sales by delivering more ads at higher prices. To do this, it continues to spend heavily on its sales force. Pandora spent 32% of revenue on sales and marketing in the first quarter. That number typically declines in the second quarter as additional hiring in the first quarter translates into a revenue bump in the second quarter.

Fending off competition
Pandora has faced competition from small competitors ever since it started. Now, big names are moving into the space as streaming music becomes more popular.

Apple took a stab at the market late last year by introducing iTunes Radio. The service is built into the hundreds of millions of iPhones the company sells, which also happen to be most buyers primary music players. This has enabled Apple to grow its user base quickly, taking 8% of the Internet radio market within six months.

Last quarter, Apple bought Beats Electronics, which includes its premium Beats Music subscription service. Beats Music isn't exactly a direct competitor to Pandora, but an alternative streaming service that complements Internet radio like Pandora or iTunes Radio.

Similarly, Google provides Play Music All Access on demand streaming without commercials or limits for $10 a month. It also features the ability for users to upload their own library of music to fill in songs and albums for which Google doesn't have the rights. That feature gives it an advantage over sites like Pandora or iTunes Radio, where users are stuck with what's available.

What Google and Apple have in common is that both control a large share of the mobile device market. Considering the majority of Pandora listening hours come from mobile, they represent a serious threat to the company's business.

What to watch for
When Pandora reports, investors should keep an eye on sales and marketing as a percentage of revenue. Last year, management brought it down to 29% in the second quarter from 33% in the first. Watch for similar improvements this quarter as revenue climbs to an all-time quarterly high.