A 21% jump in stock price over three days might scare away investors convinced that the stock has peaked, at least for the short term, given Pandora's recent success focusing on free users who aren't opposed to watching or listening to advertisements. Pandora shares were trading at $16.83 on Tuesday, the recent surge having trimmed its 2015 loss to 5.6%.
The new "sponsored listening" option allows advertisers to sponsor an hour of ad free listening in exchange for a interactive heavy ad at the beginning of the hour. The new offering allows for "less interruption for listeners and more engagement for brands," according to Pandora's press release.
The improved user interface also allows the streaming service to better track listening habits of its users. The better tracking helps improve Pandora's suggestion algorithm and save money on royalty payments, according to Hargreaves.
"Normally when a song is skipped, it is recognized as time listened because Pandora still pays royalties on the song," Hargreaves said. "The more efficient song placement is a function of Pandora's new mobile UI update, which drove increased usage of thumbs, and therefore created more data to improve the effectiveness of the algorithm."
The algorithm is arguably Pandora's bread and butter, because it what serves music to listeners. Apple Music bragged about its curated radio station in an attempt to draw new customers to the service, and Spotify recently announced a customized and curated playlist for its users, which points to a desire by consumers to cede control of their listening, to lean back and enjoy their music.
Sirius XM Radio Inc (SIRI - Get Report), saw customers flocking to its lean-back and listen radio service last quarter. According to The Buckingham Research Group, 692,000 new customers signed up for the service, beating the projected 386,000. Pandora has an active user base of 79.42 million customers.
"[Pandora's] research has shown that most people don't want to pay for music," Yong said. "And they are finally monetizing their dominance in radio streaming."