UPDATE: Pandora stock fell another 8,.5% to $17,97 on Wednesdy
Pandora listener hours in June fell from 1.35 billion to 1.25 billion. Pandora blamed the drop on seasonal listening patterns and a 40 hour listening cap instituted this spring. Despite the explanation, investors showed their displeasure pushing the stock downward 4.24% to close down $.87 at $19.65 on Tuesday. And in the long run, the drop in listener hours is actually a win for Pandora.
First, fewer listener hours means smaller royalty payments. It's particularly a big net win for Pandora with free users. Stifel Nicolaus analyst Jordan Rohan believes it will end up saving Pandora $6 million in content acquisition costs and, “would more than double our current net income [forecast] for the quarter.”
Second, ad revenue remains strong. Pandora still continues to attract more users, with monthly active users up from 70.9 million to 71.1 million in June. “Pandora’s advertising is sold against its audience [size] and hours reduction due to the cap is a huge increase to profitability,” concluded Rohan.