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Pandora Turns A Profit And Expands User Base

Posted on Monday, Nov 28th 2011

According to Gartner, end user spending on online music services will increase from $5.9 billion last year to an estimated $6.3 billion in the current year.  The market is expected to be worth $6.8 billion in 2012 and will grow to $7.7 billion in 2015. Over the same period, spending on music in physical formats, including CDs and LPs, is projected to fall to $10 billion in 2015 from $15 billion reported last year. Subscription services are projected to grow from $0.53 billion in 2011 to $2.22 billion by the year 2015, and download-based revenues will grow to $4.05 billion from $3.63 billion estimated this year. Market growth is expected to be driven by emerging markets of Latin America, the Middle East and Africa. In line with these market projections, newly listed online music player Pandora reported a strong performance in the recent quarter.

Pandora’s Financials
Driven by impressive sales growth, Pandora (NYSE:P) finally moved out of a loss this quarter. Revenues nearly doubled to $75 million, and they recorded earnings of $0.02 per share. The market was looking for a loss of a cent a share on revenues of $71.4 million.

By segment, revenues from subscribers services grew to $9 million from $5 million reported a year ago and advertising revenues grew 102% over the year to $66 million. With more than 100 million registered users, Pandora ended the quarter with the number of active users increasing 65% to 40 million. Listener hours grew 104% in the period to 2.1 billion. Pandora claims to now have a 66% share of the U.S. Internet radio market. A year ago, they claimed 53% share of the market. They have 3.7% share of all radio listening in the country.

For the current quarter, Pandora expects revenues of $80 million-$84 million with a loss of $0.02-$0.04 per share. The Street was looking for revenues of $82.1 million with a loss of $0.02 per share for the quarter.

Pandora’s Expanding Services
To continue to expand their listener hours and revenue sources, Pandora recently tied up with DMX to play licensed music into national and local retail stores such as car dealerships, medical offices, salons, restaurants and coffee shops. Business owners can purchase a DMX media player for $99.95 and will be charged a monthly fee of $24.95, per location for use of Pandora’s services.

As part of their growing automotive partners, they also tied up with Cadillac to offer Pandora music on Cadillac’s Cadillac User Experience system, which will be installed in the upcoming XTS and ATS luxury sedans and on all Cadillac vehicles starting in 2012.

Pandora’s Social Networking Focus
Pandora is also working on enhancing their social networking features. Earlier last quarter, they launched a new HTML5 version of their radio service independent of social networks. The new site is similar to a social networking site and reduces Pandora’s dependence on Twitter or Facebook. It lets users do more with their profiles by letting them create pages similar to a Facebook wall by enabling comments, status updates, and music lists.

Pandora’s stock is trading at $10.78 with a market capitalization of $1.74 billion. It touched a high of $26 soon after its listing in June of this year.

Pandora’s sequential user growth rate has fallen to sub-10% levels in the past two quarters after having grown in double-digit percentages over the previous 12 quarters. Mobile listening share has also flattened at 70% over the past few quarters despite their free app being one of the top 10 iPad apps. For now, it looks as though Pandora is working on expanding their offerings to try to counter this trend.

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