Pandora's (P) Q2 Loss Lower Than Expected, Cuts Sales View

Pandora Media, Inc. (NYSE:P) released its second-quarter 2016 results wherein it performed better-than-expected on the bottom line but missed the estimates for the top line. Adjusted loss per share (including stock-based compensation but excluding one-time items) of 26 cents per share compared favorably with the Zacks Consensus Estimate of a loss of 30 cents. Revenues of $343 million fell short of the Zacks Consensus Estimate of $352 million though it grew 20% year over year.

However, investors were disappointed with the top-line results as the stock is down over 8% in pre-market trading today.

Quarter Details

Revenue growth in the quarter was driven by higher advertising revenues (77.3% of total revenues), which increased 15% from the year-ago quarter to $265.1 million. Subscription service and other revenues (16%) inched up 1% year over year to $55.1 million. Revenues from ticketing services (7.5%) were $22.8 million, up 20%.

Active listeners at the end of the quarter were 78.1 million, down from 79.4 million in the prior-year quarter. Total listener hours, however, grew 7% on a year-over-year basis to 5.66 billion.

Total revenue per thousand listener hours (RPM) was $56.56 in the quarter, up nearly 5% from the year-ago quarter. The company’s total advertising revenues per thousand listener hours (Ad RPMs) increased 6.8% from the year-ago quarter to $53.34 in the reported quarter.

Pandora’s adjusted EBITDA loss came in at $25.1 million as against a profit of $16.3 million in the same quarter last year. The current figure excludes $32.4 million in expense from stock-based compensation.

Balance Sheet & Cash Flow

Pandora exited the quarter with $311.3 million in cash and investments compared with $382.5 million at the end of the last quarter. Cash used in operating activities was $45.5 million in the quarter compared with $9.9 million cash used in the prior-year quarter.

Outlook

Pandora provided outlook for the third quarter and updated the same for full year 2016.

For the third quarter of 2016, revenues are expected in a range of $360 million to $370 million. The company expects adjusted EBITDA to be in a band of loss of $5 million to profit of $5 million. Stock-based compensation expense of about $35 million, depreciation and amortization expense of $16 million, provision for income taxes of $0.5 million and other expenses are not included in the adjusted EBITDA forecast.

For 2016, revenues are now expected in a range of $1.385 billion to $1.405 billion, down from $1.41 billion to $1.43 billion expected earlier. Adjusted EBITDA loss is forecast to be in a range of $50 million to $70 million. The figure does not include an estimated stock-based compensation expense of $142 million, depreciation and amortization expense of $62 million, provision for income taxes of $0.3 million and other expenses.

PANDORA MEDIA Price, Consensus and EPS Surprise

PANDORA MEDIA Price, Consensus and EPS Surprise | PANDORA MEDIA Quote

Our Take

Pandora has been overhauling its operations to provide all of “radio, on-demand and live music” on its own platform. As part of the strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting deals to reduce dependence on CRB rates and better manage its content costs. In June, the company formed two strategic partnerships, one with Uber and another with Jam Productions, which will likely open new growth frontiers in the long run.

However, the company has to fend off mounting competition from the likes of Spotify, Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) . In addition, rising costs related to licensing and higher operating expenses will continue to be a drag on profitability.

Currently, Pandora carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is MeetMe, Inc. (NASDAQ:MEET) , which sports a Zacks Rank #1 (Strong Buy).