• by Mark Walsh  @markfwal, August 6, 2013

Online radio service Pandora on Tuesday said listener hours in July were up 14% from a year ago to 1.28 billion, marking a continued slowdown in growth since the company capped mobile listening hours earlier this year.

The 14% gain was down from 17% in June, and from 40% in March, the last month before the 40-hour monthly limit on mobile users went fully into effect. The cap was intended to reduce music streaming and content costs.

Despite the slowing increase in listener hours, Pandora’s audience continued to grow. Active listeners reached 71.2 million in July, up 30% from 54.9 million a year ago, while Pandora’s share of U.S. radio listening was 7.08%, up from 6.13%. In a research note today, Stifel Nicolaus analyst Jordan Rohan acknowledged that investors may view the slowdown in hours streamed as a sign of lower engagement.

“We do not see it that way. We believe the company is actively managing down unproductive hours, constraining supply and increasing its gross profitability. Advertising sales continues to ramp through increasingly productive local radio sales force, and monetization on mobile is trending upward,” wrote the sell-side analyst.

After the June audience metrics release, Rohan estimated the mobile listening cap was lowering Pandora’s content acquisition costs by $6 million during the company’s fiscal second quarter ended in July. He also noted that Pandora’s advertising is sold against its growing audience, not just hours streamed.

To help offset the mobile listening cap on hours, the company has also increased advertising overall. “Ad load in most of the U.S. has not spiked, although in some major markets, and within some attractive demographics, the increase in ad load has been noticeable,” explained Rohan.

The increased ad load, in part, led the analyst to raise his second-quarter estimate for revenue per thousand hours, or RPM -- a key Pandora metric -- to $34.08 from $29.75. He also suggested that the mobile cap was indirectly benefiting Pandora’s subscriptions business.

Users who reach the cap can pay 99 cents to continue using the service, switch to a PC, or sign up for Pandora One, an ad-free option that costs $36 a year and offers more control over music selection.

The vast majority of Pandora users access the service from mobile devices. It had 42.8 million mobile–only users in June compared to 21.5 million desktop users, according to comScore data. The company’s total mobile revenue in its first quarter ended in April nearly doubled to $83.9 million.