Pandora Media Inc.
) launched its new music recommendation unit called Promoted
Stations. This new unit will feature sponsor-branded listening
stations whereby Pandora will receive some payments from these
brands for advertising their respective stations. However, the
monetary details of the deal have not been revealed.
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) Crown Royal,
) and Sonos are among the 10 brands that have already signed for
the program. However, currently this initiative will be available
to only 10.0% of Pandora's roughly 75.0 million monthly
The functioning of the Promoted Stations will be very easy to
follow. The stations operated by the brands will appear at the
top of Pandora's "Stations You Might Like" window, which in turn
bears a strong resemblance to
) "Who to Follow" box.
However, Pandora still has not figured out the details regarding
the targeted listeners for these branded stations. Neither has
the pricing of the stations been finalized.
Pandora earns about 80.0% of its revenue from advertising and is
relying on the revenue stream to offset its large content
acquisition costs. The company grew its advertising revenue by
45% in the first quarter to $140.6 million.
With an eye to enhance and diversify its revenues in the near
future, Pandora is extending its footsteps into various new
spheres. In Mar 2014, Pandora partnered with Peet's Coffee to
create four branded stations that provide the soundtracks in
Peet's stores. This happened to be the company's first initiative
to extend its listening service into a retail space of any sort.
We believe that this newly-launched feature will work especially
well on mobiles, which approximately account for about 80.0% of
Pandora's overall listening and 74.0% of the company's last
Pandora enjoys a first mover's advantage in the music streaming
industry. Pandora's already popular service driven by its
effective discovery engine and well established infrastructure
will boost its listener base in the near term.
Moreover, Pandora's initiative of launching in-car advertising is
a major positive in the long run. The company's partnerships with
major car manufacturers such as
Ford Motor Co.
) will help it to launch the service in more than 130 models.
Moreover, it also has partnerships with Taco Bell, BP and
However, rising cost of licensing music remains a major concern
in the near term. We believe Pandora's move to raise ad-free
subscription price may result in a higher churn-rate in the near
term. Further, intensifying competition from the likes of
) and Spotify remains a major headwind.
Currently, Pandora has a Zacks Rank #4 (Sell).