Pandora Inc (
soared 5.3% ($1.36) to close at $26.89 on Oct 2, after the
Internet radio service provider announced that listening hours
jumped 18.0% from the year-ago month to 1.36 billion in Sep 2013.
Listening hours were slightly better than 1.35 billion reported
in Aug 2013.
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Pandora's share of total U.S. radio listening surged to 7.77%
compared to 6.53% in the year-ago month and 7.46% in Aug 2013.
The company's active listener base increased from 58.3 million in
September last year and 72.1 million in Aug 2013 to 72.7 million
Although the much anticipated metric reflects Pandora's strong
position in the Internet radio market, we believe that the rate
of growth declined on a monthly basis. In August, the active
listener base jumped approximately 900K from the month of July,
while the increase was a modest 600K from the month of August to
We believe that the slowdown resulted from the launch of
iRadio service last month. On Sep 23, Apple announced that the
iTunes Radio service attracted more than 11 million unique
listeners within a week of its launch.
We note that Pandora enjoys a first mover advantage in the music
streaming industry. However, increasing competition from the
likes of Apple, Spotify,
Sirius XM (
will make it difficult for the company to aggressively gain
market share going forward.
Pandora's management is well aware of this situation. The company
expects advertising revenue growth to slow down and lesser
listener hours in the near future. Pandora expects to continue to
report losses in the near term.
Nevertheless, we believe that Pandora's already popular service,
driven by its effective discovery engine and well established
infrastructure places it well to compete over the long term.
Additionally, Pandora's expanded stock offering (13 million at
$25.00) will fetch it approximately $378.8 million. The company
expects to use a portion of the proceeds for making strategic
acquisitions that will boost subscriber base. The company will
also open new sales offices and compete with radio stations for
attracting local advertising, which is a significant opportunity
going forward (currently a $15.0 billion market).
Currently, Pandora has a Zacks Rank #3 (Hold).