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Pandora Must Deal With Increasingly Sophisticated Competition

Posted on Thursday, Sep 22nd 2011

According to researchers, 63% of IPOs that came out this year are now trading below their list price. But despite the weak performance, overall the IPOs were still better than the S&P 500 Index. Year to date, the S&P 500 Index is down 11.5% compared with 6.5% reduction faced by the IPOs. Pandora, the online radio company, is among the newly listed stocks this year facing similar headwinds. Pandora’s Financials

Pandora Media Inc. (NYSE:P) saw their second-quarter loss stay flat of $0.04 per share over the year. However, revenues for the year more than doubled to $67 million from $30.8 million reported a year ago and were also ahead of previous quarter’s revenues of $51 million. The market was expecting revenues of $61.1 million. During the quarter, advertising revenues grew 118% over the year to $58.3 million and subscription and other revenues grew 112% over the year to $8.7 million. Adjusted earnings for the quarter came in at $0.02 per share compared with the break even quarter projected by analysts.

Pandora reported 37 million active listeners to their radio channel, which represents growth of 76% over the year. Listening hours increased 125% over the year to 1.8 billion for the quarter. It is estimated that Pandora commanded 3.6% of total U.S. radio listening at the end of the second quarter compared with 1.8% a year ago.

The company expects the current quarter revenues of $69.5 million-$72.5 million with earnings expected to be at a negative $0.02 per share to a break-even quarter. The market was expecting revenues of $69.9 million and a net loss of $0.01 per share.

Pandora Developing More Services for Mobile Devices
Pandora has been focusing on expanding their device reach. They are already very strong within the mobile devices, with strong adoption of iOS-based mobile devices. According to the company’s numbers, mobile devices accounted for nearly half of the quarter’s revenues. Pandora expects the contribution of mobile devices to their revenues to increase.

In addition, the company is tying up with car manufacturers to integrate their offering on newer car models. They have formed partnerships with Ford and Lincoln, and Pandora is now available on 10 Ford models and two Lincoln models. Other car manufacturers offering cars with Pandora capability are Toyota, GM, Hyundai, BMW and Mini.

They are also working on becoming TV and Blu-ray player enabled. Recently, Verizon FiOS announced the availability of Pandora access on their FiOS television service.

Pandora’s Competition
Meanwhile, Pandora’s competition continues mature. Competitors include not only Facebook, which is expected to launch their music service soon, giving access to their more than 750 million users, but also players like Clear Channel Radio service. Clear Channel recently beta launched a new version of iHeartRadio that offers streaming radio from more than 800 Clear Channel stations. Additionally, their service offers a Pandora-like user programmable radio service and an iPhone app.

As I have said before, for Pandora, it is all about their ability to successfully scale up. The stock is trading at $10.51 with a market capitalization of $1.69 billion. The stock was priced at $16.00 a share and had reached a high of $26.00 upon listing. However, it touched an all-time low of $9.33 earlier this month.

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