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Pandora Media Inc (P) Earnings Preview: Will Q2 Results Be Music To Ears?

 August 20, 2013 03:18 PM

(By Mani) Pandora Media, Inc. (NYSE:P), one of the leading Internet radio service, is expected to release its second quarter fiscal year 2014 financial results on Aug. 22, 2013, after the close of the market. The company will host a conference call at 2:00 PM (PT) / 5:00 PM (ET) to discuss the quarterly financial results with the investment community.

Wall Street expects Oakland, California-based Pandora to earn 2 cents a share, according to analysts polled by Thomson Reuters. The company reported breakeven earnings in the same quarter last year.

The company's results have topped Street view thrice in the past four quarters. The consensus view has increased by a penny over the last 90 days. In the past 30 days, 4 analysts have increased their first-quarter earnings target for Pandora, a trend indicating the bullish view of the market on the company's profit.

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Quarterly revenue is expected to climb 54.3 percent to $156.24 million from $101.27 million in the year-ago quarter. Pandora, which monetizes most of its content through display and audio advertising, has generated a large active listener base of more than 70 million and accounts for over 7 percent of all U.S. radio listening hours.

Pandora is investing heavily in its sales force and is expected to be a key catalyst for revenues this quarter. Pandora now has 29 sales offices in major markets, such as New York and Chicago, and plans more this year.

Meanwhile, Pandora's move to implement a price increase by capping free Mobile monthly listening hours to 40 should boost the number of paid subscriber additions. The move should reduce escalating content acquisition costs driven by its heaviest mobile users and would boost mobile RPMs (revenue per revenue per 1000 listening hours), a key measure of performance.

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The company has seen sustained, robust growth in key operating metrics, including active users and listener hours.

Early August, Pandora said listener hours during the month of July 2013 were 1.28 billion, an increase of 14 percent from 1.12 billion during the same period last year. Share of total U.S. radio listening for Pandora in July 2013 was 7.08 percent versus last year's 6.13 percent. Active listeners rose 30 percent to 71.2 million at the end of July 2013.

Investors will watch how Pandora is faring in terms of mobile advertising, which is key to its long-term growth. Currently, it faces declining RPMs on traditional computers and lower, yet increasing RPMs on Mobile devices.

A material expansion of Mobile RPMs coupled with a flat desktop RPMs could give Pandora enough momentum to drive bottom line.

The build-out of Pandora's local sales force, as well as its recent integration into leading radio ad-buying platforms, should help to accelerate this monetization effort.

The Street would focus on improvement in Pandora's content acquisition costs, which is one of the biggest hindrances to its business model and also one of the biggest sources of uncertainty as they are the subject of pending arbitration/litigation.

Any materially positive developments surrounding the future of the licensing cost structure would boost investor sentiment towards the stock. In addition, the focus would also be on the performance of its subscription service, Pandora One.

For the first quarter, the company posted a net loss of $28.6 million or 16 cents a share, compared with a net loss of $20 million or 12 cents a share last year. Excluding items, adjusted loss for the quarter was 10 cents a share. Revenues for the first quarter surged 55 percent to $125.5 million.

Advertising revenues, which forms a substantial part of revenues, rose 49 percent, while subscription revenues more than doubled. Pandora One subscribers surpassed the 2.5 million-mark, adding over 700 thousand net new subscribers in the quarter.

Shares of Pandora have gained 29 percent since last quarterly report and climbed 127 percent in the last one year. They have been trading between $7.08 and $21.98 during the past 52-weeks.



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