Update: Pandora Beats Earnings But Market Is Clearly Nearing Saturation

Jul.24.14 | About: Pandora Media (P)


Pandora reported revenue of $219 million and EPS of $0.04, compared to estimates of $219 million and $0.03 per share in earnings.

Pandora's quarterly earnings report has confirmed my bearish opinion.

I previously opined that an influx of competition would cause Pandora to disappoint investors.

After hours on Thursday, Pandora (NYSE:P) announced positive earnings results, but gave guidance below analyst consensus. Total revenue increased 38% y/y to $219 million, driven by 39% advertising revenue growth and 35% subscription revenue growth. Advertising revenue growth came primarily from a 144% y/y increase in local advertising. The bottom line was $0.04 per share, which beat estimates of $0.03. However, on a GAAP basis, EPS was a loss of $0.06.

In my previous article, I discussed how an influx of competitors would strain the company. Heightened competition is evident by looking at the decelerating active listener growth. On a year/year basis, it only increased 7.5% to 76.54 million. Pandora's listener base is nearing saturation and with its revenue growth tethered to its user base expansion, this is disconcerting.

With its future profitability reliant on gaining subscribers, Pandora's outlook is bleak. Further, local advertising is less profitable and the lion's share of revenue growth came through this avenue. In terms of full-year guidance, analysts were expecting it to earn $0.17 per share on revenue of $900.33 million, but management gave guidance of earnings per share of $0.16 to $0.19 and revenue of $895 million to $915 million. Pandora is not meeting expectations and will continue to disappoint in the coming quarters.

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