Pandora Quarterly Revenue Advances Helped by Mobile Users

May 23 (Bloomberg) -- Jon Erlichman reports on Pandora's earnings on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Pandora Media Inc. (P), the biggest online radio service, surged as much as 13 percent after reporting quarterly mobile revenue that almost doubled while controlling expenses.

Pandora rose 7.7 percent to $18.48 at 9:57 a.m. in New York after earlier reaching $19.37, the highest intraday price since July 2011. The stock had advanced 87 percent this year through yesterday compared with a 16 percent gain for the Standard & Poor’s 500 Index.

A 40-hour monthly listening cap on mobile devices has curbed music costs as intended, while Pandora’s audience continues to grow, suggesting the company is starting to contain its biggest expense. In the quarter, advertising sales increased 49 percent to $105.1 million, outpacing content costs which rose 48 percent to $82.9 million, the Oakland, California-based company said in a statement yesterday.

“We continue to view Pandora as a compelling pure-play on mobile advertising and believe both monetization and profitability will improve over the next few quarters,” Doug Anmuth, an analyst at JPMorgan Chase & Co., wrote in a May 21 report. He rates Pandora overweight, the equivalent of hold.

Anmuth had estimated ad sales would climb 51 percent to $106.9 million with music royalties gaining 57 percent to $87.7 million.

Mobile revenue almost doubled to $83.9 million, the company said. Total sales climbed 55 percent to $125.5 million, beating the $123.8 million average of analysts’ estimates. Costs rose 53 percent to $154 million.

Net Loss

The net loss of $28.6 million, or 16 cents a share, compares with a loss of $20.2 million, or 12 cents, a year ago, Pandora said yesterday. Excluding items, the loss of 10 cents a share matched the average of 24 analysts’ estimates for the quarter ended in April, according to data compiled by Bloomberg.

“Our long-term strategy continues to pay off and build momentum,” Chief Executive Officer Joe Kennedy said in a telephone interview. The cap on hours is “working as intended, helping us control costs by limiting listening of some of our heaviest users. Those listeners are coming back to Pandora. We’re seeing extremely low levels of loss of users,” he said.

The company added more than 700,000 subscribers in the quarter, taking the total number using its Pandora One service past 2.5 million. The commercial-free service costs $3.99 a month or $36 a year and gives more control over song selection. Pandora’s total active users reached 70.1 million in the quarter, a gain of 35 percent from a year earlier.

Radio Commercials

For the second quarter, Pandora forecasts adjusted revenue of $155 million to $160 million and results ranging from a loss of 2 cents a share to a profit of 1 cent, excluding items, compared with $149.8 million revenue and a 1.5-cent profit estimated by analysts.

Pandora has opened offices in the 25 biggest U.S. media markets to capture more of the $14 billion spent annually on local radio commercials. In March, Kennedy said that by this month advertisers will be able to compare Pandora’s audience ratings alongside those of radio stations, using services that account for 80 percent of local ad sales.

Kennedy resigned as chairman and CEO in March, pending the selection of a successor.

The company is facing increased competition at home, from new music streaming services being offered by Google Inc. (GOOG) and Twitter Inc. (TWTR) Overseas, it only offers its service in Australia and New Zealand, while smaller rival Spotify Ltd., based in London, is available in 23 countries and regions.

To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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