Pandora Reports Solid Q3, 6.8M Paid Subscribers

Pandora reported a sold Q3, including adding 784,000 subscribers in Q3, reaching approximately 6.8 million for its various paid services. That's a fraction of Spotify or Apple Music, but when factoring users of its free service, Pandora has 68.8 million active users, down slightly, with total listener hours of 4.81 billion.

It's the streamers first earnings report since the announcement of its pending acquisition by SiriusXM.

“Looking ahead, I couldn’t be more excited about Pandora joining forces with SiriusXM," said  Roger Lynch, Pandora CEO. "A combined Pandora-SiriusXM will create the world’s largest audio entertainment company, bringing Pandora additional resources to accelerate growth and building on SiriusXM’s leadership in the car, subscription expertise, and unique content.”

Pandora Q3 2018 Highlights

• Q3 Revenue was $417.6 million, growing 16% year-over-year, excluding Australia and New Zealand & Ticketfly
• Q3 Subscription revenue was $125.8 million, growing 49% year-over-year
• Q3 Advertising revenue of $291.9 million, improved year-over-year growth
• Ad RPM hit an all-time high of $77.83, growing 11% year-over-year
• Added 784,000 subscribers, reaching approximately 6.8 million total subscribers
• Non-GAAP gross margins increased 500 basis points sequentially
• Partnership with SoundCloud will increase Pandora’s U.S. ad audience reach to over 100 million users
• Announced acquisition by SiriusXM, creating the world’s largest audio entertainment company

Audience: Active users were 68.8 million at the end of the third quarter of 2018, and total listener hours were 4.81 billion for the third quarter of 2018. Pandora Plus and Pandora Premium subscribers were approximately 6.8 million at the end of the third quarter of 2018, and our Premium Access offering continues to show momentum, as over 32 million listeners have used Premium Access since its launch to date.

SiriusXM Transaction: Pandora announced a definitive agreement under which SiriusXM will acquire Pandora in an all-stock transaction valued at approximately $3.5 billion at announcement. The combination creates the world's largest audio entertainment company with more than $7.0 billion in expected pro-forma revenue in 2018. Additionally, the transaction will benefit the long-term growth potential of both companies: by bolstering Pandora’s position in the car, through co-marketing opportunities, leveraging SiriusXM’s exclusive content in Pandora’s non-music content offerings, including the Podcasting Genome, offering high-value bundled products, and improving SiriusXM’s position in the home.

Strategic Partnerships: Pandora continues to close strategic partnerships, announcing that SoundCloud will use Pandora as its exclusive U.S. advertising and sales representation. This partnership will increase Pandora’s advertising reach to over 100 million listeners in the U.S. and highlights the ability of Pandora’s sales organization and technology to help publishers better monetize their audiences. Beginning in 2019, the agreement will enable advertisers and brands to purchase SoundCloud’s U.S. ad inventory directly through Pandora, leveraging Pandora’s direct sales capabilities, targeting data, and recently-launched audio programmatic product. In addition, SoundCloud entered into an agreement to use AdsWizz’s programmatic platform globally.

Revenue Growth: For the third quarter of 2018, total consolidated revenue was $417.6 million, an approximate 16% year-over-year increase compared to the year-ago quarter (excluding Australia, New Zealand and Ticketfly; and including AdsWizz, which was acquired in May 2018). This included $291.9 million in advertising revenue and $125.8 million in subscription revenue. Ad revenue grew approximately 6% year-over-year, the first instance of year-over-year growth since Q3 2017. This was driven by record monetization from high sell-through, the launch of new innovative ad formats and a continued mix shift toward higher CPM advertising products, as well as the inclusion of AdsWizz. Advertising revenue also grew organically year-over-year, excluding the contribution from Adswizz. Subscription revenue grew 49% year-over-year, driven by approximately 1.6 million net new subscribers and higher ARPU due to the growth of Pandora Premium.

Gross Profit and Margins Increase: For the third quarter, total consolidated non-GAAP gross profit was $160.2 million (excluding Australia, New Zealand and Ticketfly). This compared to $131.7 million in the year-ago quarter. Non-GAAP gross profit margin increased by 500 basis points sequentially to 38% in the third quarter, driven by strong advertising revenue and progress with label renewals. GAAP gross profit was $156.1 million compared to $135.9 million in the year-ago quarter.

GAAP Net Loss and Adjusted EBITDA: For the third quarter of 2018, GAAP net loss was $63.7 million or $0.27 per share. This compared to a net loss of $66.2 million or $0.34 per share in the same quarter last year. Our non-GAAP net loss was $15.5 million, or $0.06 per share. This compared to $15.9 million net loss or $0.06 in the year-ago quarter. Adjusted EBITDA was a loss of $3.9 million, compared to a loss of $5.3 million in the same quarter last year. This quarter included a significant increase in year-over-year marketing spend. Non-GAAP operating expenses (excluding app store commissions and marketing spend) as percentage of revenue decreased by 300 basis points year-over-year.

Cash and Investments: For the third quarter of 2018, the Company ended with $387.6 million in cash and investments, compared to $420.8 million at the end of the prior quarter.