Pandora Media Inc (NYSE:P) just reported first-quarter results, and the market doesn't seem to like what it's hearing. Shares of the online streaming music specialist fell nearly 4% in Thursday's after-hours trading after announcing adjusted quarterly revenue grew 28% year over year, to $230.8 million, including a 35% jump in mobile revenue, to $181.1 million.
That also includes a 27% increase in advertising revenue, to $178.7 million, and a 32% jump in subscription sales, to $52 million. Meanwhile, adjusted EBITDA improved 7% over the same period to a loss of $20.9 million, which translated to an adjusted net loss of $24.9 million, or $0.12 per share.
As it turns out, Pandora was being conservative with the guidance it provided back in February, which called for revenue of $220 million to $225 million, and adjusted EBITDA to be a loss of $35 million to $30 million. Analysts, on average, were expecting a wider net loss of $0.17 per share on lower sales of $224.6 million.
Here's the "problem"
Once again, however, the market is underwhelmed with the size of Pandora's active listener base, which grew 5.1% over the same year-ago period, to 79.2 million. According to FactSet, analysts were hoping for a slightly higher quarterly base of 80.2 million active listeners.
While Pandora continues to insist it can eventually grow to 100 million active listeners in the U.S., Pandora CEO Brian McAndrews has repeatedly stated the loyalty of those listeners is a more appropriate gauge for success. And Pandora is still outperforming on that front: Total listener hours grew 11%, to 5.3 billion during the quarter, while user engagement reached an all-time high of 22.3 hours per active user per month. As of the end of the quarter, both Pandora's and third-party estimates show its share of total U.S. radio listening market reached 10% for the first time, up from 9.1% in March of last year.
"In a time when listeners and brand partners have more choices than ever," added McAndrews, "listener hours grew, local advertisers increased their spending with us, and we continued to advance our lead in digital audio by generating more demand and strong sell through."
Pandora's local advertising revenue increased 67% year over year, to $43.3 million, or 24% of total ad sales. That's a deceleration from 90% year-over-year growth last quarter, but can also be chalked up, in part, to seasonality and chunkiness as it grows from a relatively small base. Even so, keeping in mind Pandora has significantly boosted its sales force and is rolling out a new programmatic buying solution for mobile advertisers, investors would be wise to continue watching closely Pandora's progress in the local ad space in the coming quarters.
For the current quarter, Pandora expects revenue of $280 million to $285 million, with adjusted EBITDA of $8 million to $13 million. Wall Street, by comparison, was modeling earnings of $0.04 per share on sales below the midpoint of Pandora's range, at $281.6 million.
For the full year 2015, Pandora now sees revenue of $1.16 billion to $1.18 billion, with adjusted EBITDA of $75 million to $85 million. Analysts were looking for 2015 earnings of $0.20 per share on sales at the lower end of that range.
Apart from Pandora's slight "miss" on total active listeners during the quarter, there really wasn't much not to like about this report. Pandora is still taking market share as its listener base grows, and those listeners are increasingly loyal to the service. Advertisers are following the audience by putting their money to work with the company as it inches toward sustained profitability.