Factors Likely To Impact Pandora Media's (P) Q1 Earnings

Pandora Media Inc. (NYSE:P) is set to report first-quarter 2018 results on May 3.

In the last reported quarter, Pandora incurred adjusted loss per share of 21 cents, wider than the Zacks Consensus Estimate of a loss of 7 cents and the year-ago quarter’s loss of 13 cents.

Revenues increased 0.7% year over year to $395.3 million, which beat the Zacks Consensus Estimate of $375 million.

For first-quarter 2018, revenues are expected in the range of $295–$305 million, reflecting 5% year-over-year growth rate at the midpoint.

Let’s see how things are shaping up for this announcement.

Subscription Revenues – Key Driver

Pandora is riding on subscription revenues driven by the launch of Pandora Premium in 2017. In the last reported quarter, Subscription and other revenues increased 63.2% year over year to $97.8 million on the back of subscriber growth and higher average revenue per paid subscriber (ARPUs).

The company expects the launch of Premium Access in December to aid subscription of Pandora Premium. The company’s expanded partnerships with Sonos, Comcast’s Xfinity X1, Android TV and Amazon (NASDAQ:AMZN) Fire TV are also anticipated to drive results.

Notably, for the first quarter, the Zacks Consensus Estimate is pegged at $106 million, indicating growth of 63% year over year.

Advertising Poses Concern

Pandora is investing more in building ad tech capabilities to expand advertising opportunities, which remains the mainstay for the company. This is evident from the acquisition of the leader in digital audio ad technology, Adswizz, in the quarter, which is expected to close in the second quarter of 2018. The company’s focus on programmatic advertising is a positive.

However, advertising continues to be under threat owing to a decline in user base. The Zacks Consensus Estimate for total ad revenues is pegged at $197 million, indicating an 11.7% drop from the figure reported in the prior-year quarter.

Competition Hurts

Pandora operates in a highly competitive market with players like Spotify (NYSE:P) , Tidal and Amazon. Moreover, the company is a late entrant in the on-demand music services arena, which boasts big names like Spotify and Apple (NYSE:P) . Notably, Apple Music has been recording phenomenal growth.

We note that Pandora has been facing a decline in active users and total listener hours over the last few quarters due to closure of operations in Australia and New Zealand, its only two international markets.

For the first quarter, the Zacks Consensus Estimate for total listener hours is 4.88 billion, which indicates decline of 6.3% from the reported number in the year-ago quarter. Active listeners are expected to decline 5.2% to 73 million from the figure reported in the year-ago quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Pandora has a Zacks Rank #3 and an Earnings ESP of +4.92% and that indicates a likely positive surprise.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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