Streaming radio platform Pandora just released its second-quarter earnings, and it largely beat the street’s expectations. Total revenue increased 58 percent year-over-year to $162 million. The company reported non-GAAP EPS of -$0.04, a $7.8 million net loss.
Analysts expected revenue of $156 million and non-GAAP earnings of $0.02 per share. Pandora managed to beat on revenue but was disappointing on earnings. Now 71.2 million users strong, the company reported 3.88 billion listening hours over the quarter, representing an 18 percent year-over-year increase. Yet, Pandora reported 4.18 billion listening hours last quarter. Even though revenue is increasing, people are listening less to Pandora. Moreover, it is still losing money.
Pandora is careful with its Q3 estimates, as it expects between $174 million and $179 million in revenue with non-GAAP earnings per share between $0.03 and $0.06 after three quarters in the red.
Yet, the big elephant in the room is iTunes Radio. Over the past seven days, most analysts expected Pandora to report stronger revenue and profit than anticipated. It was indeed the case, but this second quarter is the last one before the introduction of iTunes Radio and Pandora’s future looks gloomy.
As the company notes, $116 million out of its $162 million reported revenue, or 71.6 percent, comes from its mobile apps. iOS is one of the two major platforms for Pandora, and it will now have to compete with a very similar product offering in the ‘Music’ apps.
Even more worrying, advertisers could move from Pandora to iTunes Radio ads, effectively menacing Pandora’s bottom line. Apple’s streaming service is supposed to stream an audio ad for every 15 minutes of music, whereas Pandora streams an ad for every 30 minutes.
Apple will release iTunes Radio in iOS 7, which should be released shortly after the rumored September 10 press event. It will be available in iTunes for Mac and Windows, as well.
The company is still focused on mobile revenue as it increased 92 percent year over year. It remains to be seen whether the company will be able to hold the same trend in the coming quarters as more players are providing a customized radio experience.
Over the past three months, Pandora got involved in heated debates over royalties. Many artists accused the streaming company of not paying enough royalties to music companies. The company had to defend its stance. Once again, most of the profit of this second quarter was spent on music royalties. A royalty increase would be very damaging to the company.
Shortly after the earnings release, shares were down 10 percent in after-hours trading. They are now trading down 3.5 percent.
Chairman and CEO Joe Kennedy provided the following statement in the earnings release:
“Our second fiscal quarter was an important inflection point in Pandora’s history. Strong momentum in our mobile business, with non-GAAP total mobile revenue growing 92% year-over-year to $116 million, clearly demonstrates the leverage in Pandora’s business model. To drive future growth, we are accelerating investment in new technologies, channels and capabilities that maximize the value Pandora delivers.”