Pandora Media, Inc. (P)

F2Q13 Earnings Call

August 29, 2012 05:00 pm ET

Executives

Dominic Paschel - VP, Corporate Finance and IR

Joe Kennedy - Chairman & CEO

Steve Cakebread - CFO

Analysts

Doug Anmuth - JPMorgan

So Young Lee - SunTrust

Jason Maynard - Wells Fargo

Mark Mahaney - Citi

Laura Martin - Needham

Jeff Houston - Barrington Research

Nat Brogadir - Stifel Nicolaus

Michael Graham - Canaccord

James Marsh - Piper Jaffray

Aaron Kessler - Raymond James

Martin Pyykkonen - Wedge Partners

Brandon Ross - BTIG

Presentation

Operator

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Welcome to Pandora Media second quarter fiscal 2013 financial results conference call. All lines have been placed on mute. (Operator Instructions) Opening today’s call is Dominic Paschel, Vice President of Pandora Media Inc. Mr. Paschel, you have the line.

Dominic Paschel

Thank you, Sheela. Good afternoon and welcome to Pandora’s second quarter fiscal 2013 financial results call for the quarter ended July 31, 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 risk, uncertainty and assumptions. Accordingly, actual results could differ materially. For a discussion of the 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.

I would also 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 Pandora.com.

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

Joe Kennedy

Thanks, Dom. This quarter exceeded our expectations as our strong momentum continues with both listeners and advertisers. Consumer adoption of Pandora personalized radio continues at an extraordinary pace. At the end of July, active users were just under 55 million, an increase of 48% from just over 37 million during the same time period last year.

Listener hours for the quarter were 3.30 billion, an increase 80% year over year. More than 75% of total listening hours took place on mobile and other connected devices. To put our listener hours in a broader perspective, they exceeded the total number of hours US consumers spend on YouTube in the same time.

And Pandora’s market share of all US radio listening as of the end of July exceeded 6%, up from 3.5% a year ago. The second quarter financial results exceeded the high end of our revenue and earnings expectations. Pandora’s total revenue grew 51% to $101.3 million. Total mobile revenue including subscription revenue on mobile was approximately $59.2 million. Mobile revenue was up 86% year-over-year, quite close to our growth rate in mobile hours which was 96% meaning that we have narrowed the mobile monetization gap considerably.

In fact if one adjusts the mobile revenue from Q2 of last year to exclude the revenue associated with the single large advertiser we had at that time, our growth in mobile revenue year-on-year actually outpaced the growth in mobile hours. We expect continued strong progress for the remainder of the year and as Steve will detail later in the call, we are raising our guidance for fiscal 2013 based on our strong second quarter results and ongoing business momentum.

I would like to dive a bit more deeply into our mobile efforts especially mobile monetization and then speak briefly about our expansion into Australia and New Zealand. Our mobile monetization strategies are working. These efforts to further developed advertising monetization of mobile fall under two broad strategic themes. First, enabling interactive buyers to easily extend their previously web-centric spending to multi-platform spending on Pandora giving them a unique advantage in being able to speak to the full range of their target audience as that audience spends more and more time on mobile.

And second, disrupting the approximately $16 billion market for traditional radio advertising with add products that offer superior targeting, interactivity and measurability. Pandora has several unique and compelling advantages in the mobile advertising market. The auditory yet interactive nature of the Pandora consumer experience means that after consumers interact with Pandora, some of the song, change of station et cetera, we can provide display advertisers with substantial screen real estate since the consumer is receiving the benefit they want through their ears, not through their eyes.

The auditory nature of the Pandora experience also enables us to offer audio advertising which is being embraced by digital ad buyers as a powerful rich media ad products as well as by traditional radio ad buyers as superior to audio advertising on broadcast radio because it is targetable, interactive and measurable.

We continue to see good early progress in our efforts to disrupt the traditional radio advertising market. In addition to providing these advertisers with greater capabilities, our continued share growth enables us to also provide more and more audience reach. During the second quarter Pandora’s audience grew across all key radio buying demographics.

Pandora’s June 2012 Triton Webcast Metrics report showed continued average quarter hour and cumulative audience gains, both nationally and in the top ten local radio markets across the country. Based on Media Audit surveys from earlier this year, Pandora is already the largest radio station reaching adults 18 and over in 25 US markets including the two biggest markets New York and LA.

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