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Pandora Stock Ticks Up on Growth of Paying Subscriptions, Revenue in Q1

Investors sent Pandora’s stock up as much 9% in after-hours trading Thursday. The spike followed the company’s reported better-than-expected revenue numbers for Q1 2018. Pandora’s earnings release also showed a growing base of paying subscribers, resulting in a massive boost in subscription revenue.

“We had a strong quarter,” said Pandora CEO Roger Lynch during the company’s earnings call Thursday afternoon (May 3). Pandora generated $319.2 million in revenue during the first three months of this year, compared to $316 million during the same quarter last year.

Pandora ended Q1 with 5.63 million paying subscribers, and grew its paid subscriber base 19% year-over-year. Subscription revenue for the quarter was $104.7 million, compared to $64.88 million a year ago. Advertising brought in $214.57 million, compared to $223.3 million last year.

A closer look at the numbers showed that Pandora’s overall engagement declined: The company had 72.3 million active listeners at the end of Q1, compared to 76.7 million a year ago. Total listener hours were 4.96 billion, down from 5.21 billion a year ago.

Pandora now wants to turn the corner on usage numbers by increasing its marketing spending in the coming quarter, said Lynch. “The decline that Pandora saw last year is reversible,” he said.

Last year’s results still included revenue from Ticketfly, the ticketing subsidiary the company sold last year, as well as subscription revenue from New Zealand and Australia, markets the company has since exited. Without those revenue sources, Pandora would have generated $285.32 million during Q1 of 2017, which led the company to announce a 12% year-over-year revenue increase Thursday.

The company had a net loss of $131.7 million during Q1, compared to $132.3 million a year ago. This translates to losses of $0.55 per share.

Analysts had expected Pandora to book $303 million in revenue for the quarter, and losses of $0.38 per share.

Pandora first launched a $10 a month premium on-demand subscription tier with features similar to Spotify’s paid music subscription service in early 2017. Previously, the company was offering an ad-free paid tier for $5 a month. Thursday’s earnings results show that the company is growing its on-demand premium tier, with the company’s average subscription revenue per user rising to $6.30 per year, from $4.76 a year ago.

However, the growth in premium subscribers also comes at a cost for the company. Its content licensing fees for paid users grew from $2.96 to $4.65 per user per month over the same period. This means that the company is actually making less money with its higher-paying users.

That’s why Pandora has in recent months put a bigger emphasis on ad-supported experiences to better monetize free listeners, including the ability to unlock on-demand listening features in exchange for viewing certain video ads. Lynch said during Thursday’s earnings call that approximately 13 million of the company’s users had tried this so-called “premium access” experience.

“I really, really like the fact that we have a balanced model between advertising and subscription,” he said.

Lynch also announced during the call that the company was working to release a family plan for its paid subscription service this quarter.

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