5 Things Pandora Media, Inc.'s CEO Wants You to Know

By Steve SymingtonFool.com

Credit: Pandora Media

When Pandora Media released third-quarter results last month, shares of the music streaming specialist plummeted as much as 40% the following day -- and seemingly with good reason.

Continue Reading Below

Though Pandora's revenue and earnings were technically inline with the company's expectations, investors panicked when monthly active listeners declined 1.6% from the previous quarter to 78.1 million. For that, Pandora primarily blamed the recent launch of Apple Music. Pandora also unveiled a surprise $90 million settlement related to its use of pre-1972 music on the platform. And between the charges related to that settlement and expected lower growth in listener hours, Pandora reduced its guidance for revenue and adjusted EBITDA for the year.

But at same time, investors would be wise to seek perspective on these seemingly troubling developments. Lucky for us, Pandora CEO Brian McAndrews offered this perspective during the company's subsequent earnings conference call. Here are five crucial points McAndrews discussed during the call:

1. Dj vu with the launch of Apple Music

First, it's important to note Pandora already warned investors three months earlier that this drop in users was possible. But it's equally important that, based on Pandora's prior challenge from Apple Radio two years ago, the company is happy the impact of Apple Music has been "muted," and should prove temporary when the dust settles. Time will tell whether that turns out to be the case, but keep in mind Pandora management has been correct in relation to Apple's music offerings so far.

2. Pandora's market share is still growing

Though Pandora saw fewer listeners compared to last quarter, active listeners actually grew 2% from the same year ago period. And those listeners were increasingly loyal, driving total listener hours up 3% to 5.14 billion. So it should come as no surprise Pandora's share of U.S. radio listening continued to rise in Q3 -- and not just from the same year-ago period as McAndrews notes, but also slightly from the 9.47% share Pandora commanded last quarter.

Also during the call, McAndrews elaborated that comScore's September Mobile Metrix ranked Pandora the No. 1 mobile service in the U.S. in terms of average minutes per user -- placing it ahead of even Facebook --while Pandora's per-user engagement was more than double the next-largest mobile music service.

3. Monetization is stronger than ever

As Pandora endures this temporary decline in listeners, investors can take solace knowing the company is more efficiently monetizing its listener base than ever before. For now, the bulk of that monetization comes from advertising, revenue from which grew 31% year over year last quarter to comprise nearly 82% of total sales. And within that, local advertisements showed the most impressive growth at 52%. Pandora's much younger programmatic advertising platform is also gaining steam, achieving $4 million in revenue so far in 2015.

Alas for now, it's still not enough to propel the company to sustained profitability. For that, Pandora will need to eventually resume growing its listener base as it continues building upon its encouraging monetization progress.

4. A (necessary) $90 million settlement

Some investors balked at the size of Pandora's settlement, which covers roughly 90% of Pandora's spins on pre-1972 music both proactively and through the end of 2016. But we should remember this follows a similar $210 million settlement struck between record labels and Sirius XM last year. By comparison, Sirius XM's deal covered 80% of its pre-1972 spins retroactively and through the end of 2017. In the end, while the exact calculations behind the dollar signs remain confidential, I think Pandora was right to pursue this deal in order to quickly move forward in a friendly fashion with theindustry professionals who make its existence possible in the first place.

5. Ticketfly is a "game changer"

Finally, when Pandora announced last month it had agreed to acquire Ticketfly, it opened the doors not only to a promising incremental revenue stream, but also another catalyst to improve its relationship with artists and listeners alike. For one, McAndrews pointed out artists generate more than 80% of their income through touring, and that per-capita spending on live music and events rose 22% last year. What's more, he noted around 40% of all tickets go unsold at mid-market concerts "primarily due to lack of consumer awareness of the events."

And Ticketfly's business is booming; through the first nine months of 2015, it sold morethan 16 million tickets with a gross transaction value of roughly $530 million, which equated to revenue of $52 million.That said, Pandora closed on its acquisition of Ticketfly on November 2, 2015, so it will recognize only a partial quarter of the ticket seller's revenue in Q4. But when Pandoraintegrates Ticketfly seamlessly into its platform, it hopes to accelerate its growth by connecting listeners directly to the events featuring music they'll love.

The article 5 Things Pandora Media, Inc.'s CEO Wants You to Know originally appeared on Fool.com.

Steve Symington owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Facebook, and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.