Pandora Media (P) provides internet radio services. The Internet radio station generates playlists based on a user's favorite artist or song. As part of the company's Music Genome Project, songs are analyzed according to musical features - including details of instrumentation, harmony, lyrics, melody, rhythm and vocals. Users enter the name of a song, and Pandora creates a playlist of songs with similar characteristics. Pandora's service, free to its more than 125 million registered users and available only in the US, is supported by local and national advertising.
Since November last year, the stock has been going up steadily and it has gained almost 100% in the past six months. The company announced fourth quarter earnings, which has justified the increase in the stock price.
According to the earnings announcement, the company has achieved blockbuster growth over the past 12 months. Pandora recorded 56% year-over-year growth in revenues. Total revenue for the full year stands at $427.1 million for the company and fourth quarter revenue grew by 54% year-over-year, and currently stands at $125.1 million. Advertising revenue for the fourth quarter stood at $109 million, 51% higher than the year ago levels. Subscription and other revenue showed a year-over-year increase of 74% and reached $16.1 million.
Advertising revenue for the full year is $357.2 million, 56% higher than the last year. Furthermore, full year subscriptions and other revenue stand at $51.9 million, 51% higher than 2011. Mobile revenue grew by 111% year-over-year, and reached $80.3 million. Pandora recorded revenue of $255.9 million from mobile during 2012.
At the moment, the company has 8% market share of the U.S. radio listening market. Furthermore, the company is ranked third by eMarketer in terms of market share in mobile ads market, Behind Google (GOOG) and Facebook (FB). Pandora generated $224.8 million from mobile ads during the past year.
Despite massive growth in revenues, the company reported a net loss. However, the loss was less than the estimates, which caused the stock price to go up. Analysts were expecting a net loss of $0.05 per share, but the company reported non-GAAP loss of $0.04 per share. For the next quarter, average estimated for revenue is $118.5 million, and analysts expect the company to report a net loss of $0.10 per share. Furthermore, the full year average revenue estimate is $598.5 million, and expected net loss is $0.01 per share. If the company continues the growth in revenue, it may be able to beat analyst estimates again and report a small full year profit.
Cash position of the company is incredibly strong. Pandora ended the fourth quarter with $89 million in cash, cash equivalents and short-term investments. Cash has increased from the last quarter when it stood at $80.5 million. In addition, cash flows from operations have improved substantially. The company reported cash flows from operations of $8.4 million, compared to $1.9 million for the same quarter last year.
Furthermore, total listener hours have also increased by 53% year-over-year, and currently stand at 4.05 billion hours. For the full year, listener hours grew by 70% and stood at 14.1 billion hours.
The company expects the revenue to be between $600 million and $620 million for the next fiscal year. Earnings or net loss should be between ($0.05) and $0.05 per share. Mobile ads revenue is one of the biggest components for Pandora. As I mentioned above, the company currently stands behind Google and Facebook in terms of market share. However, mobile ads market is growing at a rapid pace and there is a big opportunity in the market. There is a lot of room for the company to grow revenue in this segment. As a result, I believe the full year expectations will be met, and the company may be able to post a small profit over the next year.
The stock has gained substantially over the past six months, which may tempt some investors to take profit. However, financial performance of the company indicates that the company can maintain current stock price in the long-term. As I said above, there is a lot of room for growth in the mobile ads market, which is one of the biggest segments for Pandora. The company should not have trouble in the long-term, and investors should be able to enjoy healthy profits. There may be fluctuations in the stock price in the short-term. However, I believe, Pandora can be a winner in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.