Competition Toughens for Pandora

According to a survey conducted by Edison research, Internet Radio popularity has been increasing over the last year. As of this year, there are 67% more people listening to Internet Radio compared to only 23% more people listening to “Over-the-Air” AM/FM Radio. The shift to the online streaming services has been driven by the increasing availability of content and convenience associated with the internet radio services.

Pandora’s Financials
Pandora’s second quarter revenues grew 38% over the year to $218.9 million, marginally ahead of the Street’s projections of $218.6 million. EPS of $0.04 was also ahead of the market’s expected $0.03.

During the quarter, advertising revenues grew 39% to $177.3 million while subscription service and other revenues increased 63% to $41.6 million. Total revenue per thousand listener hours improved 7% to $43.41. Pandora’s advertising revenue per thousand listener hours (RPMs) from mobile and other connected devices increased 6% to $40.11.

Among other operating metrics, mobile advertising RPMs improved 11% to $36.00 and accounted for 76% of the total ad revenues. Pandora has been investing in local ad strategy and that seems to be delivering as they saw local ad revenues grow 144% over the year. During the quarter, listener hours grew 29% to 5.04 billion with active users increasing 7.5% to 76.4 million. At the end of June, Pandora had recorded an impressive 25 million daily unique listeners for every Friday.

For the current quarter, Pandora projected revenues of $235 million-$240 million with an EPS of $0.05-$0.08. The Street was projecting revenues of $234.5 million and earnings of $0.08 per share. Pandora revised their year’s projections upwards to $895 million-$915 million in revenues and EPS of $0.16-$0.19. The market was looking for revenues of $895 million.

Pandora’s Competition Intensifies
Within the US radio listening market, Pandora accounted for 8.9% of the market share at the end of June this year. This is an improvement over the 7% share reported a year ago. Within the Internet radio segment, Pandora accounts for nearly 80% of the country’s listening hours. However, Pandora would need to keep working harder as competition intensifies in the segment.

Apple is heating up the battle with a rumored $30 million acquisition of Swell. Swell is similar to Pandora as it is able to customize radio stations to a listener’s preference. However, unlike Pandora, Swell is focused on talk radio content from channels such as NPR, TED, PBS, New York Times and BBC. The channel allows users to select the topics that they are most interested in and share those on social media networks as well. But, more importantly, last quarter, Apple paid $3 billion to buy the music empire of Beats. Analysts believe that with Beats Music under its belt, Apple will be able to leverage iTunes Radio to deliver a strong competition to Pandora.

And, it is not just Apple. Google is also becoming a big competitor. Last quarter, Google acquired Songza, a service similar to Pandora. Like Pandora, Songza is able to customize the listener’s radio channels to their preferences. However, it goes further, as it is able to integrate external factors such as the time of the day, location, weather, and user activity to deliver the best suited playlist to the listener. Google will be integrating Songza’s capabilities into YouTube and Play Music, thus intensifying competition for Pandora.

For now, though, Pandora does not seem very worried. They are successfully raking in advertising dollars and are trying to capture the car integration market. Pandora accounts for nearly a third of the new cars which are sold in the country that have Pandora pre-installed. As of January 2014, 5 million cars in the country were integrated with Pandora compared with 1 million a year ago. But the market worries about the rising competition. Their stock is trading at $24.41 with a market capitalization of $5.04 billion. It touched a high of $40.44 in March this year.