Raymond James analysts Aaron Kessler and Ben Cohen take a close look at Pandora in light of the company’s recently released February metrics.

Pandora

Earlier this week, we hosted Dominic Paschel, vice president of Corporate Finance and Investor Relations, at our institutional investor conference. Pandora Media Inc (NYSE:P) noted its significant long-term growth drivers, including: 1) Developing innovative and scalable products – reached over 250 million registered users in January. In addition, Pandora noted that today it has a team focused on increasing user engagement, looking at how to re-engage dormant users and how to drive more hours/users. 2) Increasing utilization of ad inventory – for audio ads specifically, Pandora Media Inc (NYSE:P) has increased audio ads per hour on average from 2-2.5 per hour in 2012 to 2.5-3 per hour by the end of 2013 (with a max of six audio ads per hour up from four the prior year). Pandora also discussed its targeting based on gender, age, and zip code, as well as overlaying third-party data. Pandora also has other targeting initiatives including programmatic and real-time bidding for advertisers. 3) Building the sales force – 18 months ago Pandora began investing in its local sales force; Pandora is now in 32 of the top 50 markets and Pandora added 101 salespeople in 2013 (ended with ~270 salespeople).; 4) Increase paid listening (Pandora One subscription); 5) Expanding distribution – integrating more than 130 models of cars and over 1,000 consumer electronics devices. 6) Increasing content offering (i.e., comedy); 7) Expanding internationally – Pandora Media Inc (NYSE:P) recently hired Sara Clemens as chief strategy officer who will lead business strategy, corporate development, and international expansion efforts. Pandora Media Inc (NYSE:P) believes it now has the capital and ability to invest more heavily overseas.

Pandora released mixed February metrics on Thursday

Total listener hours were 1.51 billion in February, up 9% y/y (vs. up 13% y/y in January) and vs. our estimate of ~12% y/y for 1Q14. Active listeners were 75.3 million in February, up 11% y/y (vs. 12% y/y in January). Additionally, Pandora Media Inc (NYSE:P)’s shares of total U.S. radio listening increased to 8.91%, up from 8.57% in January. We note that listener hour continues to be impacted by listening caps imposed beginning March 2013 and comps should ease in 2/3Q.