Pandora Says It Can’t See Any Spotify Effect
A good first quarter from Pandora in its debut as a public company: A solid revenue beat, and encouraging noises about mobile advertising. Or at least that’s my take: Investors, meanwhile, have pushed the company up a modest two percent in after-hours trading.
A quick look at Pandora’s Q2, its first-ever earnings report: Revenue of $67 million and earnings of $0.02 per share, after factoring out certain costs. The Street was expecting revenue of about $60 million, but I’ve seen wildly conflicting reports of “consensus” on earnings per share and EBITDA, so I’ll hold off on those for now.
Analysts are also going to be very interested in other metrics from Pandora, especially its “Total Listening Hours.” That’s the number of hours listeners spent with the service for the quarter, and it’s up to 1.8 billion. That’s a 125 percent year-over-year increase.
Pandora also said mobile advertising revenue accounts for half of its total. That should please skeptics who worried that Pandora’s big growth spurt was coming from mobile use, and that the company wouldn’t be able sell much mobile advertising on iPhones, Android, etc.
Meanwhile, that revenue bump means that Pandora’s content acquisition costs — the money it has to shell out to record labels and publishers — came out to almost exactly 50 percent of revenues. Which sounds like a lot, but is in line with the company’s recent history — and much better than it used to be.
I got a chance to lob a few questions at Pandora CEO Joe Kennedy before his earnings call started. I asked him to provide more metrics about Pandora’s subscriber base, and the breakdown between mobile users and desktop users, and he declined. But he did say that mobile listening now accounts for 70 percent of Pandora’s total listening hours, up from around 60 percent when the company was pitching investors in advance of its IPO.
Kennedy also said he hasn’t seen any effect from Spotify’s well-hyped — and initially successful — entry into the U.S. market this summer. “We’ve not been able to discern any impact from any of the new digital initiatives that have been launched,” he said. “That doesn’t surprise us.”
I’ll be covering the call via a liveblog here shortly.
5:03 pm: Good afternoon! I’ll be liveblogging this call pretty much because I can. To be fair, I’m not really expecting much in the way of fireworks. But since I’m going to listen in anyway, I may as well type up my notes. And then you, dear reader, can read along. Or not.
5:05 pm: CEO Joe Kennedy reading prepared statement. I’ll skip most of this, in part because he’s already previewed some of it, and also because the only interesting part on almost all of these calls is the Q&A.
5:08 pm: Kennedy talking up mobile ads, citing numbers he’s already published, along with industry numbers from IAB, etc.
5:10 pm: And now on to the possibilities of the car market — another key part of the Pandora pitch. (Also a part of most digital music companies’ pitches, it turns out.)
5:13 pm: Now talking up Pandora’s newfound interest in social networks, courtesy of its new app.
5:16 pm: And now Pandora CFO Steve Cakebread. That is a pretty great name. That said, I’m going to direct you here for most of this.
5:17 pm: Of note: 37 million “active users” in July. Up 76 percent year over year.
5:25 pm: Would really, really love it if all public companies emulated Netflix and skipped this entire part of the earnings call. Netflix posts the scripted part on the Web, and goes straight to Q&A. Speaking of which, here we go:
Q: More color on mobile ads, please: Sell-through rates, CPM, ad load? Also, who’s your biggest advertiser? And you say that said advertiser won’t have more than 10 percent of revenue next quarter. Why?
A: Kennedy not willing to offer much color here. Both display and audio growing. As far as big unnamed advertiser — we love ’em. But we think ad base will get bigger and more diverse.
Q: Anyone dropping out because of the economy?
A: Cakebread. Nope. People are trying us out, and then buying more ads.
Q: On content acquisition. That’s a better number than I expected — can you keep that going?
A: Kennedy. “We clearly know how to monetize usage” and we’ll get better at it.
Q: Any effect from Spotify? (Hey! that’s familiar.) And does it make you think you’ll sell more subscriptions yourself?
A: Kennedy. We’re two different businesses. “We haven’t been able to discern any impact,” etc. (See above.) And we’re a different business — they’re on-demand, we’re radio. Radio is 80 percent of audio entertainment, etc.
Q: Even more on mobile monetization, please. (Sort of garbled here.)
A: Kennedy unwilling to talk much about new product launch. But he says both bloggers and advertisers like the new site/app the company put out recently.
Only a “single-digit percent of users” have access to new Pandora.com.
Q: You’ve been talking up local ads. Has the national/local revenue mix changed?
A: Our size and scale as a standalone radio market in individual city/territory is getting significant, and that’s going to be a very big deal for us.
Q: So desktop hours are down/flat? Why is that? Also, how do you allocate dollars that you do from ad packages where mobile/web are bundled?
A: Seasonality. People spend less time on desktop during summer. We think we’ll have “some growth” in Web going forward. But “vast majority” of our business and growth is going to be mobile.
Q: (Couldn’t understand.)
A: Kennedy seems to be answering a question about iTunes and Amazon sales derived from Pandora links.
Question I totally can’t follow about search and social.
Kennedy seems to get it, though. He is talking about Pandora’s discovery algorithm, and balancing that against the wisdom of the crowd. So Pandora can expose you to new music — but not too much new music — it wants to give you stuff you and your pals already like, too.
Q: Can you break down audio ad versus display ad totals? Also, any change about average number of audio ads per hour? And what’s the number of ads per hour for a key demo (ie 18-34) listener?
A: Three audio ads per hour remains our maximum. As far as display versus audio — audio still growing in absolute terms, and percentage of total.
(Missed Q here, apologies.)
Q: Talk more about ad loads — seems like that’s creeping up a bit. Is that correct? Also, ad sales hiring is up, right?
A: Nothing new to say about about audio ads.
OK, signing off. But not before I fess up and acknowledge that this was not my finest liveblog. Will work harder next time.