Pandora Media Inc(NYSE: P) stock lost over 24.9% on November 3rd, 2017 (as of 11:20AM EDT; Source: Google finance) due to lower than expected third quarter of 2017 performance.
The group reported a Loss per share of 6 cents on a revenue of $379 million. Pandora Media delivered 73.7 million of active listeners during the third quarter of 2017 which fell from 77.9 million in the prior corresponding period. This is a fall for the third straight quarter. The group’s Listener hours fell to 5.15 billion, against 5.4 billion in the year-ago quarter. Their Advertising revenue, which represents major portion of the overall revenue, rose only 1% on a year over year basis again falling short of expectations, which reached $275.7 million. Non-GAAP gross margin fell to 37%, against 40% in pcp, hurt by rising content costs under direct deals versus statutory rates. Non-GAAP gross margin enhanced from 36% in Q2 to 37% in Q3, boosted by better RPMs during the quarter.
On the other hand, the group’s Subscription and other revenue surged 50.5% yoy to $84.4 million during the quarter while added 320,000 net new subscribers in Q3, leading to the cumulative subscriber base to 5.19 million. The group achieved over 1 million Premium subscriptions, and would continue to develop new go-to-market partnerships, family and student plans, and bring Premium to desktop, tablet, CE, and auto platforms.
Pandora listening on voice-activated devices surged 300% on a year-over-year basis. The group believes that these devices would also expand the potential for future innovation with voice-activated advertising. The group intends to expand their partnerships with new and existing device partners to make sure all three tiers of Pandora’s service show up on all the devices. For 2018, the group intends to expand on their initial success with Serial and This American Life. New forms of content like podcasts, spoken word, and traditional radio would expand engagement with their current audience and attract new and lapsed listeners.
But they forecast their ad LPMs to continue to fluctuate as subscriber trajectories evolve due to the nature of accounting for minimum guarantees (MGs). They forecast their ad LPMs to fall mostly in the fourth quarter of 2017 hurt by MGs as they have negotiated modifications with some of their content partners. On the subscriber side, third quarter licensing cost per subscriber (or LPU), reached $3.87, against $2.14 in the prior corresponding period, and from $3.11 in the prior quarter.
Analysts from B. Riley FBR, Inc. and Stifel downgraded the stock post the weak earnings performance.