Pandora beats in Q3 with $417.6M in revenue, fast-growing subscription business

Streaming music service Pandora released its third quarter earnings today – the first since the news of its impending acquisition by SiriusXM, announced in September. The company reported a quickly growing subscription business for its paid products, Pandora Plus and Pandora Premium, which brought in $125.8 million in Q3 – a figure that’s up 49 percent year-over-year.

However, Pandora’s larger user base consists of those on its ad-supported free tier, whose revenues are not growing as quickly. The company pulled in $291.9 million in ad revenue, it said. That’s only up 6 percent year-over-year – despite the fact that Pandora’s acquisition of digital audio ad technology company AdsWizz completed in May and contributed to Pandora’s ad revenue this quarter.

Pandora also said the launch of new ad formats and a shift to higher CPM ad products aided in the ad revenue growth – modest it may be.

For the quarter, Pandora reported $417.6 million in total revenue for the quarter, a 16 percent year-over-year increase (excluding Australia, New Zealand and Ticketfly, and including AdsWizz). This beat the consensus estimate of $401.29 million.

Its non-GAAP net loss was $15.5 million, or $0.06 per share. This compared to $15.9 million net loss or $0.06 in the year-ago quarter. It beat analysts estimates of ($0.11) on this front.

In terms of listeners, Pandora added 784,000 subscribers in Q3, reaching approximately 6.8 million total subscribers for its paid products.

That’s still far, far smaller than rivals Apple Music and Spotify – the latter which also reported earnings this month, claiming 87 million premium customers versus Apple Music’s 50 million. By comparison, Pandora’s paying customer base is tiny, but its overall user base is not.

Pandora said its active users reached 68.8 million by the end of Q3, with total listener hours of 4.81 billion.

It also touted the success of its Premium Access product, which allows customers to unlock on-demand music for a session by watching video ads. The company said over 32 million listeners used Premium Access to date. However, the high use of the product compared with the small size of its paid customer base makes one wonder if Pandora is missing an opportunity to lure in potential subscribers by giving them this easy way to avoid paying through these ad views.

Because the Pandora / SiriusXM deal is still pending – it’s set to close in Q1 2019 – the company didn’t host an earnings call.

However, it did again reiterate the potential benefits of such a deal, including the $7.0 billion in expected 2018 revenue as a result, co-marketing opportunities, and the addition of SiriusXM’s exclusive content to boost Pandora’s non-music content business.

It also made note of the recent ad partnership deal with SoundCloud, which will increase Pandora’s U.S. ad audience reach to over 100 million.

“I’m proud of the progress we’ve made over the past year to reinvigorate Pandora,” said Roger Lynch, Pandora CEO, in a release. “A year ago, we committed to drive listener engagement through product innovation, expand our content, and increase distribution partnerships. We also prioritized making our ad tech capabilities a strategic advantage. And we executed. We launched new products like Premium Access, delivering on-demand functionality and improved listener engagement in our ad-supported tier; forged partnerships with leading brands such as T-Mobile, AT&T, Comcast, and Snap; and solidified our global leadership in digital audio advertising with the acquisition of AdsWizz and the launch of our programmatic audio marketplace.”

“Looking ahead, I couldn’t be more excited about Pandora joining forces with SiriusXM. A combined Pandora-SiriusXM will create the world’s largest audio entertainment company, bringing Pandora additional resources to accelerate growth and building on SiriusXM’s leadership in the car, subscription expertise, and unique content,” he added.

Pandora’s stock is up 2.3% in after hours trading.

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