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Pandora Media (P)

F1Q 2013 Earnings Call

May 23, 2012 5:00 p.m. ET


Joe Kennedy - Chairman and CEO

Steve Cakebread - CFO

Dominic Paschel - VP, Corporate Finance and Investor Relations


Doug Anmuth - JP Morgan

Ralph Shackart - William Blair

Mark Mahaney - Citigroup

Heath Terry - Goldman Sachs

Edward Williams - BMO Capital Markets

Aaron Kessler - Raymond James

Jason Maynard - Wells Fargo

Steven Frankel - Dougherty & Company

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Good afternoon and welcome to Pandora Media’s first quarter fiscal year 2013 financial results conference call. [Operator instructions.] Opening today’s call is Dominic Paschel, VP. You may begin your call.

Dominic Paschel

Good afternoon and welcome to Pandora’s first quarter fiscal 2013 financial results call for the quarter ended April 30, 2012. Some of our discussions will contain forward looking statements which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated market demand or opportunities, and other forward-looking topics.

These statements are subject to risks, uncertainties, and assumptions. Accordingly, actual results could differ materially. For a listing of our risks that could cause our results to differ from today’s discussion, please refer to the documents we filed with the Securities and Exchange Commission.

Also, I would like to remind you that during the course of this conference call, we may discuss non-GAAP measures of our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release and form 8-K filed this afternoon with the SEC.

Today’s call is available via webcast, and a replay will be available following the conclusion of the call for two weeks. To access the press release, supplemental financial information, or the webcast replay, please consult our investor relations section of

With that, let me turn the call over to Joe Kennedy, Pandora’s chairman and CEO.

Joe Kennedy

Thanks Dom. We had a strong start to the new fiscal year as Pandora continues to redefine radio. During the first quarter, we delivered excellent progress across every key aspect of the business. Consumer adoption of Pandora personalized radio continues at an extraordinary pace.

We’ve surpassed 150 million registered users, a level which only a very select few services have reached in the United States. Listener hours were 3.09 billion, up 92% year over year. In the trailing 30 days ended April 30, 51.9 million registered users were active on Pandora, up 53% year over year. And Pandora’s market share of all U.S. radio listening as of the end of April was just under 6%, up from 3.1% a year ago.

In the first quarter, Pandora’s total revenue grew 58% year over year to $80.8 million, exceeding the high end of our Q1 guidance by nearly $6 million. Ad revenue grew 62% to $70.6 million, as compared to the first quarter last year. Mobile and device revenue now represents roughly 55% of total advertising revenue. We expect continued strong progress for the rest of the year.

I’d like to focus most of the remainder of my remarks on monetization. Pandora today monetizes desktop usage at a significantly higher level than we do usage on mobile and other connected devices. In fact, we have already demonstrated the business model on the desktop, where content acquisition cost as a percentage of revenue is already at or below the long term target we shared during the IPO process. We believe that monetization on mobile and other devices has the same long term potential.

As we move forward and continue to turn that potential into reality, we are focused on two overarching strategies. First, continuing to rapidly grow revenue as interactive ad buyers move more and more dollars to communicate with their target customers where those customers are spending more and more of their time, on mobile and other devices. And second, disrupting the $17 billion market for traditional radio advertising.

In terms of the first of these two strategies, we have a powerful platform for interactive advertisers who want to speak with their target customers across the full range of connected devices that those customers are using today - on the desktop, on mobile phones, on tablets, wherever, whenever, and however those consumers are connected.

Pandora’s platform is uniquely powerful for these interactive ad buyers for four primary reasons. First, Pandora offers broad reach across both the desktop and mobile devices. Pandora is one of just a very small number of U.S. services that have tens of millions of users on the desktop and tens of millions of users on mobile.

Second, Pandora offers powerful targeting. Advertisers can focus on whatever combination of age, gender, geography, and music best matches their target customer. As a registration-based service, we are one of very few services that has this information for every user.

Third, Pandora offers advertisers an unusually large amount of visual real estate for their ads, which results from the fact that Pandora’s primary benefit is auditory. Yet users interact with the service an average of seven times an hour. Pandora serves visual ads only after such an interaction, guaranteeing the advertisers that the user is focused on the screen.

Most other internet-based services provide their content to consumers visually, creating a conflict between space for content and space for advertising, a conflict that is all the more acute on smaller screen devices such as mobile phones, meaning that this Pandora advantage only increases in a mobile environment.

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