Pandora Media Inc (P) Stock Dips After Q1 Revenue Miss

Pandora Media Inc (NYSE:P) posted narrower-than-expected adjusted loss per share (including stock-based compensation but excluding one-time items) of 37 cents for the first quarter of 2017. The Zacks Consensus Estimate was pegged at a loss of 50 cents per share. As a result, Pandora stock is down more than 3%.

Revenues increased 6.3% year over year to $316 million but missed the Zacks Consensus Estimate of $318 million.

Apart from earnings, Pandora announced that it has received $150 million investment from a leading investment firm, KKR. Pandora’s CFO Naveen Chopra said “A strong balance sheet gives us the ability to accelerate growth investments when appropriate and to compete aggressively in a rapidly changing, complex market.”

Furthermore, Pandora has announced that the company’s board is forming an independent committee presided by Timothy Leiweke to appoint new directors. Existing directors, M. P. Feuille and Peter Gotcher are stepping down with immediate effect. Richard Skarnoff, head of KKR’s Media and Communications Private Equity investing in the Americas, will now be inducted into the board.

Following these announcements, Pandora stock was up nearly 3% … but ultimately reversed to a 3% decline mid-Tuesday.

Pandora Stock Price, Consensus and EPS Surprise

Pandora Media, Inc. Price, Consensus and EPS Surprise | Pandora Media, Inc. Quote

Quarter Details

Revenue growth in the quarter was driven by higher advertising revenues (70.7% of total revenues), which increased 1% from the year-ago quarter to $223.3 million. Subscription service and other revenues (20.5%) increased 19% year over year to approximately $64.9 million. Revenues from ticketing services (8.8%) grew 25% to about $27.8 million.

Total listener hours fell 5.6% on a year-over-year basis to 5.21 billion in the first quarter while the number of active listeners fell to 76.7 million from 79.4 million of the prior-year quarter.

Average revenue per paid subscriber (ARPU) was $4.76 in the quarter and Licensing costs per paid subscriber (LPU) was $2.96.

Pandora’s adjusted EBITDA loss was $71.3 million compared with a loss of $57.4 million in the year-ago quarter.

Balance Sheet & Cash Flow

Pandora exited the quarter with $203 million in cash and investments, down from $243.3 million at the end of the last quarter. However, cash used in operating activities was $36 million in the quarter compared with $13.1 million in the prior-year quarter.

Guidance

Pandora provided guidance for the second quarter as well as for full year 2017.

For the second quarter of 2017, revenues are expected in the range of $360–$375 million. The company expects adjusted EBITDA loss in the range of $50–$65 million.

The Zacks Consensus Estimate for the top and the bottom line is pegged at $393.3 million and loss of 30 cents per share, respectively.

For 2017, revenues are forecast in the range of $1.50–$1.65 billion.

The Zacks Consensus Estimate for the top and bottom line stands at $1.62 billion and loss of $1.07 per share, respectively.

Our Take on Pandora

Pandora has taken strategic measures to post a turnaround. In the past few months, the company announced Pandora Plus and Pandora Premium services. While Plus is a “one-of-a-kind, ad-free radio experience” available for $4.99 per month, Premium creates a playlist for users based on their playlist history. It will be ad free and will enable users to save songs for offline listening. Premium carries a price tag of $10. Management said it saw a 20% year-over-year increase in subscribers.

Also, as part of its strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting label deals to reduce dependence on copyright royalty board (CRB) rates and better manage its content costs. It has struck several licensing deals with Sony Music, Warner Brothers, a unit of Time Warner and Universal Music Group. Pandora also announced a 7% cut in its workforce.

Though these initiatives appear to be headed in the right direction, analysts observe stiffening competition as a very powerful threat. Pandora’s entry has been pretty late in the on-demand music services arena, which boasts big names like Spotify and Apple Inc. (NASDAQ:AAPL). We note that Pandora’s shares have gained 2.77% in the past one year, underperforming the Zacks categorized Internet Services industry, which gained 20.05%.

Presently, Pandora carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the broader tech space are Alphabet Inc (NASDAQ:GOOGL) and Blucora Inc. (NASDAQ:BCOR). Both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, Alphabet and Blucora delivered an average positive earnings surprise of 5.74% and 20.74%, respectively.

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