Pandora (P 5.58, -1.83 -24.7%), the media platform which allows users to access millions of song titles, makes all-time lows this afternoon despite narrowly beating earnings expectations for the current quarter as the company’s disappointing outlook for the coming quarter weighs on shares.
Put plainly, the stock is getting hammered today on the weak guidance so let’s start there. Pandora guided on the conference call last night for Q4 revenue between $365-380 million, well below Street expectations, on adjusted EBITDA in the range of a loss of $15 million to a loss of $5 million. Also, management sees full-year sales and marketing expense for 2017 to be comparable to 2016.
Further, on the call management gave expectations for ad Licensing Costs per 1,000 hours (LPMs) to decline materially in Q4 as the impact of minimum guarantees will be less significant and because we have negotiated modifications with some of the company’s content partners. Management also expects many of the headwinds that constrained ad revenue in Q3 to sustain through Q4. The company expects market conditions in retail, CPG, and auto accounts to remain challenging, resulting in continued pressure on advertising revenues. Additionally, the MAU trends and ad-tech challenges Pandora faces will take some time to address, and will therefore, also impact advertising revenue in Q4.
Swinging back to the Q3 results, Pandora reported a better than expected loss of $0.06 per share on in-line revenues of $378.6 million. Advertising revenue was $275.7 million, a 1% year-over-year increase incorporating an increase in the average price per ad, and offset by a decrease in the number of ads sold. In relation, Q3 licensing cost per subscriber, or LPU, was $3.87, up from $2.14 last year, and $3.11 in the prior quarter. These increases were largely driven by the mix shift from Pandora Plus to Premium.
Total paid subscribers increased from 4.01 million in last year’s Q3 to 5.19 million this year, growing about 29% year-over-year. Subscription and other revenues were $84.4 million, a 50% year-over-year increase as Pandora Premium surpassed 1 million paid subscribers in October. Also, daily active users on Consumer Electronic (CE) and Automotive Platforms were up 36% year-over-year. Ticketing service revenue was $18.5 million this period, a 16% year-over-year decrease due mostly to the Ticketfly divestiture closing in the beginning of September, resulting in only two months of ticketing revenue in Q3.
The company also reported that total listener hours were 5.15 billion for Q3, compared to 5.40 billion for the same period of the prior year. Also, active listeners were 73.7 million at the end of Q3; this excludes about 1.1 million active listeners from Australia and New Zealand, following the company’s decision to exit the business in those countries. Further, on the conference call management highlighted that the nearly 4% year-over-year decline in active listeners was partly due to the natural disasters in Texas and Florida. The company noted that those heavily populated areas typically generate heavy Pandora listening.
Later, after the earnings report was filed Pandora announced an offering of 480,000 shares of convertible preferred stock and an additional 61,961,860 shares of common stock by selling stockholders.