Shares of Pandora Media Inc (P – Snapshot Report) reached a new 52-week high of $31.94 on Friday, Nov 15, 2013. The bullish run reflects Pandora’s impressive second quarter results, improving monetization and steady market share despite significant competition particularly from Apple (AAPL – Analyst Report).
The closing price of Pandora on Nov 15 was $31.56, representing a strong one-year return of about 320.2% and a year-to-date return of about 232.6%. The S&P 500 jumped 29.7% and 23.0%, respectively during the same period.
Pandora delivered a positive earnings surprise of 150.0% over the past four quarters. This Zacks Rank #3 (Hold) stock has a market cap of $5.97 billion and long-term expected earnings growth rate of 40.0%.
Key Growth Catalysts
Pandora reported an impressive second quarter of fiscal 2014. Although the company reported loss of 2 cents per share (in line with the Zacks Consensus Estimate and flat year-over-year), revenues surged 58.0% from the year-ago quarter to $162.0 million. Mobile revenues surged 92.0% from the year-ago quarter to $116.0 million.
Improving monetization as evident from a 31.8% year-over-year jump in total advertising revenue per thousand listener hours (ad RPMs) aided results in the quarter. Moreover, listener hours improved 18.0% year over year to 3.88 billion in the quarter. Active users jumped 30.0% to 71.2 million at the end of the quarter.
Although its active listener base continues to decline on a month-over-month basis, we believe that Pandora’s already popular service, driven by its effective discovery engine and well established infrastructure, places it well to compete against the likes of Apple, Spotify, Google (GOOG – Analyst Report) and Sirius XM (SIRI – Analyst Report).
Additionally, Pandora raised approximately $400.0 million from its stock offering in September, which it expects to use for domestic and international expansion as well as for strategic acquisitions. However, rising costs related to licensing will remain a headwind in the near term.
Estimate Revision
The Zacks Consensus Estimate for the third quarter remained steady at earnings of a penny over the past 30 days. For fiscal 2014, the estimate has remained unchanged at a loss of 16 cents over the past 30 days. For fiscal 2015, the earnings estimate has plunged 40.0% (2 cents) to 3 cents per share over the same period.
