Pandora Media: Post-Earnings Review

New On-Demand Service, Listener Hours Key

Martin Pyykkonen, Consulting Analyst

Pandora’s newly introduced on-demand Pandora Premium music service has dominated headlines for the company in recent months. Street analysts expect it to play a key role in the company’s future, with current Visible Alpha consensus expecting to form almost 65% of overall revenue by 2022.

While the Street is positive on the announcement, expectations from the service’s impact on Pandora vary greatly. Not only has consensus for Pandora Premium service been significantly revised over the past 3 months, but the range of estimates remain significant for both near and long term forecasts.

Visible Alpha consensus estimates for the premium service for 2017 and 2018 increased by more than 40% in December, but analysts have largely tempered their expectations since. Current Visible Alpha consensus revenue for Pandora’s Premium service this year has dropped 40% for 2017 and 16% for 2018 compared to 3 months ago.

Pandora On-Demand Revenue Consensus Revisions

Source: Visible Alpha. For illustrative purposes only.

Despite this moderation, analysts still remain deeply divided on how much the new service will impact the company’s top line. The high/low range for Pandora Premium revenue in 2017 and 2018 is more than 100% in each year. In 2017, we are seeing an 143% difference ($61 million to $148 million), and an 103% difference in 2018 ($300 million to $608 million). In later years, the gap becomes even pronounced.

Source: Visible Alpha. For illustrative purposes only. Learn more about Visible Alpha.

Higher Listener Hours Driving Long Term Streaming Revenue

Listener hours per average user (LH/AU) is Pandora’s key operating metric in its advertising supported streaming service. Higher LH/AU will create more hours of music listening inventory, against which Pandora can sell advertising.

Source: Visible Alpha. For illustrative purposes only.

While analysts are generally expecting a positive trend in LH/AU, the increase in usage is driven by growth in total listener hours rather than total active users through every year until 2022.

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