Pandora’s Recent Metrics Suggest Slowing Growth

Pandora Media (NYSE:P), the leader in Internet radio in the U.S., typically releases some of its metrics each month. The recent release for July and previous releases for May and June together tell a story. And, that is, the growth in listener hours as well as active users is slowing down. The growth in number of listener hours, which depend on total users and the time they spend on Pandora, stood at 87%, 77% and 76% for May, June and July, respectively. ^{[1] [2] [3]} Each of the months posted a declining trend in growth and the the growth was lower compared to what Pandora recorded in Q1.

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Media businesses tend to slow down in Q2 and therefore a fewer number of additions compared to Q1 is normal. However, here we compare year-on-year metrics thereby eliminating the effect of sequential seasonality. Along with listener hours, the growth in active listeners slowed down as well. ^{[1] [2] [3]} Overall, the listener hour growth is still above what we expect for the whole year 2012 and is trending toward our estimates, nevertheless.

As the growth slows down, Pandora will be better able to sell its ad inventory for the mobile platform and thus better offset content-related costs which are a major concern for the company, which means that slowing growth is not necessarily a bad thing for Pandora. Furthermore, the growth is still quite high if we look at the stand-alone figure.

Our price estimate for Pandora Media stands at $7.90, implying a discount of about 20% to the market price.

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1. Pandora Announces May 2012 Audience Metrics, Pandora Media Press Release, June 6 2012 [↩] [↩]
2. Pandora Announces June 2012 Audience Metrics, Pandora Media Press Release, July 10 2012 [↩] [↩]
3. Pandora Announces July 2012 Audience Metrics, Pandora Media Press Release, Aug 6 2012 [↩] [↩]