Announcing user metrics for March on Thursday, Pandora reported mixed results as it seeks to fend off challenges from Apple’s iTunes Radio and newer challengers like Beats Music.
The online radio service said the number of active listeners came in at 75.3 million -- flat compared with last month and up 8% from a year ago. That was down from 12% year-over-year
gain in February. However, growth in total listener hours jumped 14% in March from a year ago after slowing to 9% the prior month.
That’s the highest growth rate in audio volume
served since November 2013, suggesting that Pandora so far is keeping Apple from making significant inroads in usage after being launched in September. Still, the total listener hours of 4.8 billion
in March came in a bit lower than analysts’ expectation of about 4.9 billion.
Pandora’s share of the overall online radio audience also ticked up a percentage point to
9.1%.
“We think the launch of competing services such as Beats Music in January has had a minimal impact on Pandora’s listener hour growth to date,” wrote JP Morgan
analyst Doug Anmuth in a research note today on the latest Pandora figures.
He added that he expects growth in listener hours to accelerate in the second quarter as the company fully
lifts its 40-hour cap for mobile listening. Stifel Nicolaus analyst Jordan Rohan was not quite as bullish, pointing out that listener hour growth will come out to 12.7% in the first quarter versus
16.1% in the fourth quarter of 2013.
“Our take: we believe the deceleration in user growth suggests a natural maturation of the business and is consistent with a slowly
contracting multiple over the next 12-18 months,” he wrote. He suggested that the lower total hours of music streamed could lead to higher operating margins if not reinvested property in
technology and product development.
Apple to date has offered few details on the uptake of iTunes Radio. But it continues to build out the service, recently adding National Public
Radio as its first non-music programming. According to Billboard, the company is also considering introducing an iTunes Radio app for Android that would potential expand its audience dramatically.
Investors weren’t terribly impressed with Pandora’s March metrics, with the stock down more than 2% in afternoon trading to about $30.60 a share. The company will report
first-quarter results on April 24
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It may be fashionable to talk down Pandora's prospects, but the fact remains it has dominant market share in the rapidly growing Internet Radio segment. BIA/Kelsey is predicting that Internet Radio advertising will go mainstream this year and if you want to reach a large audience with advertising spend in this channel, Pandora is your best bet.
I suspect many players will experiment with a variety of services, but all of them will use Pandora to some extent. This scenario and eCPM improvements generated through more local ad sales should make Pandora even stronger from a revenue standpoint.