
Pandora Downplays Long-Term Impact of Rival Apple Music
Pandora Media (P) is feeling the burden of Apple (AAPL) - Get Report Music's entrance into streaming music, but the largest Internet radio provider doesn't expect the damage to be long lasting.
Speaking on an investor conference call Thursday, CEO Brian McAndews said Apple's aggressive marketing of its new Music streaming app, a roughly $100 million promotional campaign, had an adverse effect on Pandora's ability to grow its user base and increase the amount of time listeners spend on the service.
Nonetheless, McAndrews insisted that Pandora's streaming business, both its free and subscription offerings continue to grow at a steady pace, and that the slowdown being felt during the second half of 2015 wasn't due to losing market share to Apple but rather to potential subscribers, mostly younger listeners, testing Apple Music as part of its three-month trial offering.
"It was a point that pulled together a number of factors," McAndrews said in an investor conference call, citing Apple's promotional efforts. "We don't expect that to be sustained over time."
Shares of the Oakland-based Internet radio provider tumbled as much as 22% in after-hours trading on after reporting third-quarter revenue that missed analyst projections and offering guidance for the current quarter that trailed forecasts. Most alarming to investors, Pandora lost 40 cents a share for the quarter. Analysts had expected a profit of 10 cent per share.
[Pandora lost 35% on Friday, Oct. 23, dropping to $12.35, its lowest level since March 2013.]
All told, Pandora said sales in the third quarter jumped 30% to $311.6 million compared to the same period a year earlier but that total missed analyst forecasts of $312.8 million, the average of 28 analysts' estimates surveyed by Bloomberg. Fourth-quarter revenue, the company said, is expected to total $325 million to $330 million, short of analyst projections for $351 million as surveyed by Bloomberg. Listener hours totaled 5.14 billion, a 3% increase from the same period a year earlier, a slower pace than in previous quarters.
The underwhelming numbers follow Apple's June 8 announcement of a $9.99 per month streaming service that that prompted Pandora's stock to drop as investors worried that Apple's enormous global reach would easily overwhelm its much-smaller rival. Pandora subsequently rebounded and prior to Thursday's earnings release, shares had gained 9% since the Apple Music launch event.
Pandora's growth has rested on two factors: its ability to differentiate itself from Apple Music and Spotify and a favorable initial ruling from the U.S. Copyright Royalty Board in September.
As became readily apparent in the days following Apple Music's unveiling, Pandora's radio service is a much different than its large competitor. Unlike Apple Music, which allows a user to pick from millions of songs and millions of albums, Pandora is a radio platform that crafts playlists based on users' tastes. Spotify has more to fear from Apple's "lean forward" service than Pandora's "lean back" experience.
Additionally, the royalty board's preliminary decision went a long way toward easing concerns about a sudden spike in rates that could force streaming services to pay a lot more money to musicians and songwriters to play their music. A final ruling is expected in December.
Taken together, those two items suggest Pandora's future is promising, though the company is not without some risks, said Wedbush analyst Michael Pachter, in an Oct. 14 investor report.
The Internet radio platform continues to grow revenue per listening hour though not as fast as in previous quarters. Judging from its current hours, Pandora will be under pressure to accelerate listening hours. Pandora plans to increase marketing expenses in 2016.
To grow its user base, Pandora must demonstrate that it is securing additional deals with music labels, thereby offering listeners more selection and variety, Hargreaves said. Additionally, the company needs to accelerate its international expansion, he added.
If Pandora can grow its listener base above its current level of 80 million monthly users, revenue is expected to continue to climb, which will allow the company to expand an advertising sales force that's focused increasingly on the local markets that are home to its true rivals: traditional radio stations.
McAndrews did receive push-back on Thursday from analysts critical of its recent acquisition of Ticketfly, the online ticketing business for which it paid about $225 million and 11.6 million Pandora shares earlier this month.
The acquisition puts Pandora into direct competition with Live Nation Entertainment's (LYV) - Get Report Ticketmaster, the industry leader. Many on Wall Street, including Wedbush's Pachter, assert that Pandora paid too much for Ticketfly, which handles ticketing and marketing for about 1,200 venues and promoters throughout North America.
The Ticketfly deal, McAndrews has argued, will allow Pandora to widen its revenue stream and better capitalize on its expanding user base.








