Pandora Media (NYSE:P) will release its calendar Q4 2013 financial results on 5th February for the quarter ending with December. (The company announced a few months ago a change in its fiscal year end from January to December.) We expect that the improvement in mobile monetization continued in the quarter. Moreover, the active listener base is back on a growth track and will continue to aid the company’s revenue growth. We expect these trends will continue to reduce Pandora’s losses and accelerate its move towards profitability. It is important to note that the change in the fiscal year end will impact the seasonal pattern we have seen for the fourth quarter in monetization and revenues. Here is what you can expect from the upcoming earnings announcement.
Our price estimate for Pandora stands at $24, implying a discount of about 30% to the market price.
Active Listener Growth Back On Track
Pandora’s active listener base didn’t grow much throughout the last quarter. The company attributed this to some less sticky customers trying out new services including Apple’s (NASDAQ:AAPL) iTunes radio. It also stated that the growth was back on track by the end of October, and it appears that the momentum carried into the remaining two months of 2013. According to monthly disclosure of certain operating metrics, the number of active listeners increased from 70.9 million in October 2013 to 76.2 million in December 2013, with most of the gain coming in December.  In addition to this, the year-over-year growth stood in mid double digits. This suggests that the competition from Apple and others is not strong yet.
Mobile RPMs Will Continue To Improve
Pandora’s RPM (revenue per 1,000 listener hours) has seen a substantial jump in recent quarters. Total mobile RPM has increased from 25.50 in Q4 fiscal 2013 to 39.97 in Q3 fiscal 2014.  The company’s focus on increasing audio ads and expanding its ad business among local clients, along with the continued ramp up of its sales force, are fueling this growth. Mobile ad revenues account for more than 70% of overall advertising revenues now, up from 47% in fiscal 2012. That’s encouraging and comparable to Twitter, which earns more than 75% of its revenues from mobile. Although RPM figures tend to go down sequentially in the fourth quarter of Pandora’s fiscal year, due to seasonal effect of inclusion of January, the stub period of November and December will imply that this figure can go up instead. The company announced a change in its fiscal year a few months ago, which will now conclude at the end of December instead of January.
The annual radio advertising sales in the U.S. are in the vicinity of $15 billion, while U.S. digital advertising stands at more than $40 billion. Compared to this, Pandora’s annual revenues are around just $659 million (2013 estimate). There is an opportunity to grow and we expect the company’s mobile monetization to approach that of the desktop over the course of next six to seven years as it continues to attract advertisers looking to reach a more relevant audience.Notes: