P's Dec Listening Hours Up; Brings In-Car Ads - Analyst Blog


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Shares of Pandora Inc. ( P ) soared 14.1% ($3.90) to close at $31.49 on Jan 6, after the Internet radio service provider announced that listening hours jumped 13.0% from the year-ago month to 1.58 billion in Dec 2013.

Listening hours were also better than 1.49 billion reported in Nov 2013. Pandora's change of policy related to listening limits (40 hours per month) in Sep 2013 continues to drive strong growth in listening hours.

Additionally, Pandora's share of the total U.S. radio listening market increased to 8.60% compared to 7.58% in the year-ago month and 8.44% in Nov 2013.

The company continues to solidify its position in the U.S. web-based radio market. Active listeners at the end of December were almost 76.2 million, compared with 67.1 million a year ago. The number of active listeners also increased from 72.4 million in Nov 2013.

The significant growth in active listeners is encouraging amid stiff competition from Apple 's ( AAPL ) iTunes Radio service. However, we believe that as an increasing number of people try iTunes Radio, Pandora will lose some market share, going forward.

Nonetheless, we note that Pandora enjoys a first mover's advantage in the music streaming industry. We believe that the company's already popular service, driven by its effective discovery engine and well established infrastructure, places it well to compete against the likes of Apple, Spotify and Sirius XM ( SIRI ) .

Pandora's announcement that it is launching in-car advertising from this month is a major positive in the long run. The company's partnerships with major car manufacturers such as Ford Motor Co. ( F ) will help it to launch the service in more than 130 models.

Reportedly, Pandora is developing ads that will be based on user preferences. This targeted ad offering will further boost advertising revenues (88.0% of revenues). However, rising costs related to licensing coupled intense competition may hurt profitability in the near term.

Currently, Pandora has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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