Pandora’s Earnings Review: New Ad Insertion Strategy And Pandora Premium To Lead The Growth

by Trefis Team
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The internet radio company  Pandora (NYSE: P) has released its Q4 and full year earnings on February 9th. The company’s quarterly and annual revenues surged by 17% and 19%, respectively, which was led by an increase in the number of paid  subscribers. EBITDA fell further into negative territory higher costs incurred from Ticketfly business, along with higher content acquisition costs due to the revised royalty rates set by the CRB (Copyright Royalty Board).

The two key takeaways from the earnings are :

  1. Pandora has revised its advertising strategy to maximize advertising revenues
  2. Launch of Pandora Premium scheduled for March

pandora-Q4-earn

See our complete analysis for Pandora

A Move Towards Extracting More Profits From Advertising

To maximize revenues from its advertising business, Pandora has made changes to the ad insertion logic in its platform. The advertisements are being diverted to the areas of maximum demand and traffic. The result of this was visible from 18% increase in Q4 RPM (Revenue Per Thousand Hours Of Listening) from around $57 to $67. In addition to this, the frequency of advertisements too has been increased, which is not only benefiting the revenues of advertising division, but is also pushing the users of the free service to pay for the ad-free subscription service, that is Pandora Plus. In Q4, the company was able to convert 375,000 of its users to paid subscribers.

Pandora All Set For Its On-Demand Music Service

The company will launch Pandora Premium later in Q1 2017, which is its on demand music service. Earlier Pandora was primarily into music streaming in the form of internet radio. Pandora Premium’s subscription will cost a user $10 per month, same as what Apple Music and Spotify charge for their on demand music service. While Pandora Premium, along with Pandora Plus will boost the subscription revenues, it is worth noting that Pandora’s music library of around 1 million songs as of now is far smaller than Apple’s and Spotify’s libraries of around 30 million songs. Apart from this, Spotify and Apple Music have 20 million and over 40 million paid subscribers respectively. These two factors combined can straightaway pose a tough competition to Pandora Premium. Pandora has 81 million active listeners of the free service and 4.39 million sunscribers as of year end.

 

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