Music Business

Pandora Q2: Revenue Up, Listener Hours, Active Users Down (And That’s Good News)

Pandora-new-logo-image-001UPDATED: Pandora reported a 12% year over year revenue increase in Q2 2018, after the markets closed on Tuesday. But both monthly listener hours and active users continued a slow but significant downward spiral. Details & Analysis:

Total listener hours on Pandora were 5.09 billion for the second quarter of 2018, down from 5.22 billion at the end of Q1 2018. Active users were 71.4 million at the end of the second quarter, compared to 72.3 million just three months ago. 
 
Pandora Plus and Pandora Premium subscribers were approximately 6 million at the end of the second quarter of 2018, up from 5.63 million at the end of Q1.   That's an increase of 351,000 subscribers to Pandora Plus and Pandora Premium plans. The streamer added more than twice as many subscribers in Q2 than Q1 driven by a new $14.99 family plan which is seen as an "important growth contributor" in future quarters.
 
Ad revenue was $271.1 million in Q2 and subscription revenue came in at $113.7 million, up 67% year-over-year after revenues from the additional territories and Ticketfly are excluded. 

“We made continued progress against our strategy with total revenue growing 12%, subscription revenue up 67% and ad hour trends improving for the third straight quarter,” said Pandora CEO Roger Lynch. “New partnerships with top brands like Snap and AT&T, as well as enhancements to our ad tech and programmatic offerings, position us to further accelerate growth and ownership of the expanding digital audio marketplace.”

Pandora_2016_logo wideKEY PANDORA Q2 2018 FINANCIALS

  • Total Q2 Revenue was $384.8 million, growing 12% year-over-year excluding Australia, New Zealand & Ticketfly, exceeding top-end of guidance
  • Q2 Subscription revenue was $113.7 million, growing 67% year-over-year excluding Australia, New Zealand & Ticketfly
  • Ad hour trends improved for the third straight quarter
  • Ad RPM hit an all-time Q2 high of $68.75, growing 4% year-over-year
  • Added 351 thousand to approximately 6 million subscribers; which grew 23% year-over-year
  • Announced partnerships with AT&T, Snap and Cheddar
  • Completed the acquisition of AdsWizz and launched Audio Programmatic

Non-GAAP net loss was $38.9 million, or $0.15 per share. This compared to $50.1 million net loss or $0.21 in the year ago quarter. Adjusted EBITDA was a loss of $34.6 million, compared to a loss of $54.3 million in the same quarter last year.

ANALYSIS: Falling Use Is Good News

Increased revenue from both advertising and subscriptions is always good news. But in an industry where 50% -70% of costs come from content licensing, if that growth is driven by increased use, more revenue does not equal profits. Spotify is living proof of the more users = bigger losses phenomenon. 

But in recent quarters, Pandora has increased revenue while both listener hours and active users have slowly fallen. If both those trends continue, Pandora could eventually end up with a loyal core user base that's actually profitable. 

It's a contrarian path to profitability that has kept Napster and other smaller streamers that don't offer a free tier afloat. Plus Pandora's free users cost the company a lower digital radio/ SoundExchange rate compared to the negotiated interactive rates that Spotify pays for its free users.  

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