) reported loss of 6 cents per share in the second quarter of 2014,
wider than the Zacks Consensus Estimate by a couple of cents and
the year-ago loss of a penny. Shares fell 9.47 % ($2.72) in
extended hours of trading due to weak earnings guidance for the
Non-GAAP revenues jumped 38.2% year over year to $218.9 million,
almost inline with the Zacks Consensus Estimate.
The year-over-year increase was on account of higher advertising
revenues (81.0% of revenues), which increased 39.0% from the
year-ago quarter to $177.3 million. Subscription service and other
revenues (19.0% of revenues) improved 62.7% year over year to $41.6
Total revenue per thousand listener hours reached $43.41 in the
second quarter, up 7.0% from $40.53 in the year-ago quarter.
Advertising revenue per thousand listener hours (Ad RPMs) from
mobile and other connected devices increased 6.0% from the year-ago
quarter to $40.11 in the reported quarter.
Mobile advertising RPMs were $36.00 in the second quarter,
increasing 11.0% from $32.56 in the year-ago quarter, despite
intensifying competition from Google (
) and Facebook (
). Currently, mobile advertising accounts for 76.0% of total ad
revenue. The investments in local advertisements seem to have paid
off as local revenue surged 144.0% on a year-over-year basis.
Total listener hours grew 29.0% on a year-over-year basis to 5.04
billion in the second quarter in comparison to 3.91 billion in the
same period last year. Active users increased 7.5% year over year
from 71.1 million to 76.4 million in the second quarter of 2014.
Moreover, for the month of June specifically, Pandora had more than
25.0 million daily unique listeners every Friday, which is an
all-time-high to date. Listeners consumed on average 21.1 hours in
June, up 20.0% on a year-over- year basis.
Pandora's share of the total U.S. radio listening market increased
from 7.0% a year ago to 8.9% at the end of June. However, as more
and more people try Apple's (
) iTunes Radio, we believe that Pandora will lose some market share
During the quarter, Pandora formed an alliance with Stubhub as a
part of the latter's next stage concert series in order to extend
support to emerging artists. The quarter also witnessed the
introduction of Pandora's Discovery Den to Miami as part of the
hottest week in Latin music. This program was produced in
collaboration with State Farm, P&G Orgulossa and Sprint.
Operating expenses (including stock-based compensation), as a
percentage of revenues, surged 430 basis points (bps) to 48.0% in
the quarter. The significant year-over-year increase was primarily
due to higher sales & marketing (up 230 bps), product
development (up 100 bps) and general and administrative expenses
(up 110 bps) in the quarter.
Pandora reported an operating loss of $11.7 million compared with a
loss of $6.8 million in the year-ago quarter. Net loss (including
stock based compensation) was $11.5 million or 6 cents per share
compared with net loss of $1.5 million or a penny reported in the
Balance Sheet & Cash Flow
The company exited the quarter with $437.9 million in cash and
investments compared with $445.9 million in the prior quarter.
In the quarter, the cash outflow from operating activities was $7.1
million as compared to $4.6 million in the year ago quarter.
For the third quarter of 2014, revenues are expected to be in the
range of $235.0 million to $240.0 million. The Zacks Consensus
Estimate for the same is pegged at $234.0 million. The company
expects to report earnings in the range of 5 cents to 8 cents per
For 2014, revenues are expected to be in a range of $895.0 million
to $915.0 million, up from the prior range of $880.0 million to
$900.0 million. The Zacks Consensus Estimate stands at $895.0
million. Earnings are expected to be in the range of 16-19 cents
per share for the full year, up from the prior guidance of 14-18
cents per share.
Pandora reported not-so-encouraging second quarter results.
Management provided a pessimistic guidance for the third quarter as
it intends to plough back a majority of its profits in the
Improving monetization and strong mobile growth are positives. We
believe that Pandora will benefit from growing listening hours,
market share gains and introduction of the new music recommendation
unit called Promoted Stations. These stations will feature
sponsor-branded listening stations.
We believe that this newly-launched feature will work especially
well on mobiles, which accounts for about 80.0% of Pandora's
overall listening and 74.0% of the company's last-quarter revenues.
However, rising costs related to licensing will remain a headwind
in the near term. Moreover, higher operating expenses are expected
to hurt profitability in the near term.
Nevertheless, we believe that Pandora's popular service, driven by
its effective discovery engine and a well-established
infrastructure place it well to compete against the likes of Apple,
Google, Spotify, and Sirius XM.
Currently, Pandora has a Zacks Rank #3 (Hold).
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