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RHPanalysts
Articles (244) 

Pandora Media: This Internet Radio Service Provider Is Primed for Better Times

September 25, 2014 | About:

Pandora Media’s (NYSE:P) strategic moves to boost investments in mobile and local advertising continue to augment its growth, as its revenue from core advertisements rose approximately 39% last quarter and its subscription revenue increased about 35% year-on-year. The company has lowered its revenue outlook but has increased its earnings guidance for the full year.

Expecting better times

Pandora sees total market opportunity of $50 billion for its various business segments – such as digital enriched media, mobile and broadcast radio markets – across the United States. The company is moving aggressively to achieve this remarkable opportunity with a number of key initiatives such as user engagement, rising listener hours and constant focus on the local advertising and mobile monetization.

Its active user rose 7.5% to 76.4 million as compared to 71.1 million active users a year ago in the same quarter. Pandora is additionally experiencing solid movement in listening hours that accelerated approximately 5% on a quarter-on-quarter basis from 4.8 billion in the first quarter 2014 to 5.04 billion in the second quarter 2014.

Meanwhile various third party measurement sources such as Triton, comScore and Edison state improved market share for Pandora in the United States is up to 8.9% from 7.04% a year ago. Edison research estimates its overall market share at 9.2% for entire broadcast satellite and internet radio listening while comScore’s top 100 properties reveal approximately 81.8 million monthly uniques; and Triton Digital has estimated total market share for Pandora in the United States internet radio at 77.6% for the top 20 properties.

These reports clearly suggest that Pandora is leading the path in the Internet radio and broadcast satellite radio that should certainly make an impact on its growing shareholders.

Investing in technology

Additionally, Pandora continues to create advanced databases for advertisers that should help the company drive monetization. Pandora recently launched Promoted Stations, a new advertising solution on beta with advertisers such as Kleenex Brand, Skechers USA (NYSE:SKX), StubHub, Taco Bell, and Toyota Motor (NYSE:TM). This advertising solution with natively integrated ad product is gaining traction in the market, and the company expects to include many other brand stations to this ad unit that should drive greater monetization going forward for the company.

The media company has also recently included Pandora’s Discovery Den to Miami as per the hottest week for Latin Music that should certainly involve more listeners for its music, and advertisers can definitely make their presence felt in the music community. This program is created with the support of State Farm, P&G Orgullosa, and Sprint (NYSE:S).

Further, the company remains on track to present its listeners with the customized concert designed with their favorite artists which will certainly fetch great number of listeners to its fleet. Pandora has also built partnership with StubHub to facilitate its next stage concert series that should provide high-class excess to the true music lovers.

Price initiatives

Pandora is also executing various price initiatives it has recently taken off its $36 annual plan and has increased price for its $3.99 monthly plan to $4.99 for its new subscribers while its existing clients who remained active paying subscriber can still have a $3.99 monthly plan. Besides, Pandora continues to pay high royalties – more than $1.0 billion to its artists, publishers and labels – that will certainly keep the artists, publishers and labels associated withPandora.

The company is also working closely with music communities and conducting various events such as Pandora Presents, Pandora Discovery Den and Pandora Premieres that should help the artists connect with their fans effectively.

Pandora is committed to reaching a larger audience and therefore it has recently hired Lars Murray for the post of vice president of industry relations. Lars has worked with Columbia Records and was responsible for digital marketing operations helping artists increase their fans by means of digital platforms.

Conclusion

Pandora is currently trading at the forward P/E of 53.02 with PEG ratio that stands at 2.36 for the next five years, reflecting slow but steady growth for the music company. The company has no debt outstanding while its operating cash flow remains at $4.88 million. Moreover, the analysts have estimated CAGR of 62.90%, which is quite higher than average industry CAGR of $21.35% for the next five years, highlights a lot of potential for the stock to grow in the future.


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