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Pandora fourth quarter earnings up as CEO steps down

By Galen Perkins | 11 Mar 2013

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Screen Shot 2013-03-11 at 1.48.00 PMChairman, Chief Executive Officer and President of Pandora Media Inc. (NYSE: P), Joseph Kennedy, announced Thursday that he will be stepping down from his position. This on a day when the Oakland-based company beat analyst’s expectations for its fourth fiscal 2013 quarter due to strong revenues from improved mobile monetization.

The Internet radio service provider reported a fourth quarter net loss of $14.6 million, or nine cents per diluted share, down from a loss of $8.2 million or 5 cents per diluted share for the same period of 2012.

Adjusted losses, excluding $6.9 million in charges for stock-based compensation, was $7.7 million, or 4 cents per share, compared to a $4.7 million loss or 3 cents per share for the same quarter year-over-year. Earnings exceeded analysts’ estimates by 1 cent.

Fourth quarter revenues were $125.1 million, up 54 percent from $81.3 million in the same quarter last year. Analysts expected revenues would be $122.7 million.

On his first call with analysts, newly hired Chief Financial Officer Michael Herring said that Pandora beat its expectations because of increased mobile advertisement revenue driven by the company’s expanded advertisement sales team.

“For the past two quarters, growth in mobile advertising revenue exceeded growth in mobile listening hours, reflecting our improving monetization of mobile content where 79 percent of our listening hours occurred in the fourth quarter,” said Herring.

Total mobile revenue in the fourth quarter grew 111 percent to $80.3 million, a 70 percent year-over-year increase from $38 million in the same quarter last year. Since cost per listen is a fixed royalty fee, increasing revenue per listener remains the primary goal said Herring.

For the fiscal year 2013, Pandora generated $427.1 million in revenues, up from increase from $274.3 million last fiscal year.

Advertising remained the largest source of revenue for the company, generating $375.2 million for the year, a 56 percent increase from $240 million the year before. Subscription revenue accounted for $51.9 million of the total revenue, up 51 percent from $34.4 million.

The company reported a net loss of $38.1 million for the year, or 23 cents per diluted share, down from $16.1 million in fiscal year 2012 or 19 cents per diluted share.

Excluding $25.5 million in stock based compensation, Pandora posted a net loss of $12.6 million, or 8 cents per diluted share, compared to a $2.4 million net loss last year or 2 cents per diluted share.

“It was pretty much as expected,” said Barrington Research analyst James Goss shortly after the conference call. “Although, the top line and the guidance for next year are above previous guidance.”

Looking forward to next quarter, Herring calculated total revenues will be between $120 million and $125 million, with non-GAAP losses of between 13 cents and 10 cents loss per diluted share.

Total listening hours for the quarter increased 53 pecent from 2.66 billion in the fiscal fourth quarter of 2012 to 4.05 billion. The year’s total was 14.01 billion hours, a growth of 70 percent from 8.23 billion in fiscal 2012. Pandora now controls more than 8 percent of the traditional radio market share.

Scott Devitt of Morgan Stanley Research division asked if the increase in listening hours had to do with the company’s expanding “automobile segment.”

“I wouldn’t attribute the increase to the car, in particular,” said Kennedy. “I still think that fundamentally, the continued penetration of smartphones across the U.S. population is the single most important catalyst, but we’re also seeing tremendous growth in the living room, with TV devices as well and obviously, the news continues to be good on the automotive side.”

As listener hours continued to climb, content acquisition costs accounted for 61 percent of Pandora’s total revenue, some $258.7 million.

The company’s executives said content acquisition costs will be offset with a 40-hour per month mobile listening limit announced last week and the integration of Pandora ads into the traditional radio advertisement buyer platforms.

“On Tuesday, we announced that Pandora’s audience data will appear in the three most popular media-buying platforms, including STRATA and Mediaocean’s Donovan and Mediabank stewardship systems,” Kennedy said on the call with analysts. “These systems enable radio buyers to compare Pandora’s audience data side-by-side with that of the broadcast radio stations they’ve historically used.”

JP Morgan Chase & Co analyst Douglas Anmuth inquired about the initial results from integration, but Kennedy indicated it is still too early to see any results. Pandora will be fully integrated in the three media-buying platforms by the end of April, said Kennedy.

For the fiscal year 2014, Herring estimated the company will generate revenues in the range of $600 million to $620 million, with non-GAAP losses of five cents per share and a gain of five cents per share. Analysts polled by Thomson Reuters forecast $600 million in revenues.

At the close of the earnings call, Joe Kennedy said he would be leaving Pandora once a suitable successor is identified. “I’m excited to continue to lead the company as chairman, CEO, and president all the way through the transition, no matter how much time that process takes,” Kennedy said.

Kennedy provided little detail on the reason for his departure. He alluded to the demands of his position, but nothing more beyond the need to rest after nearly ten years leading Pandora.

“I’m sorry to see it,” said Goss. “He understands the business and he understands the math about it; he’ll be something of a challenge to replace.”

Pandora’s shares closed down 0.36 percent at $13.74 at the 4 p.m. close of today’s New York Stock Exchange.

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