We're streaming a lot of music these days.
Shares of market leader Pandora Media (P) soared 12% on Thursday after posting better-than-expected quarterly results.
Sure, the music discovery giant did post a loss for the period. Applauding red ink feels a lot like asking for an encore at a concert where the band forgot to tune the instruments. Pandora also posted a slight dip in revenue sequentially, meaning that revenue during the fiscal quarter ending in April was just below what it cranked out during the three prior months of the holiday quarter before that. If a band follows up a platinum album release with one that only goes gold, it's not exactly a good sign.
However, it's still all about expectations and where a company lands relative to those targets.
Cracking Open Pandora's Box
Revenue during the company's fiscal first quarter clocked in at $80.8 million, 58% ahead of where it was during the same period a year earlier. The showing may have been less than the $81.3 million that Pandora reported during the holiday-boosted fiscal fourth quarter, but it was comfortably ahead of the guidance calling for $72 million to $75 million in revenue that it had issued back in March.
Pandora's adjusted deficit of $0.09 a share during the quarter doesn't seem so bad when you consider that analysts -- and the company itself -- were expecting to lose twice as much money during the quarter.
It's really in the popularity metrics where the Pandora story really starts to resonate.
There are now 51.9 million active users of the service where simply providing the name of a musical artist, genre, or song can launch a customized music experience of similar tracks. Pandora's now serving more than a billion listener hours a month, 92% ahead of where it was a year earlier.
When you pit Pandora against traditional radio stations in the country, Pandora's share of that listening has climbed from 3.11% a year ago to 5.95% today.
The boom in smartphones finds Pandora at the forefront of a revolution in the way that we consume music. Imagine the throwback Walkman, in your phone, with a never-ending music library -- for free. There are many people that pay for a premium version that strips away ads, but most of Pandora's users have no problem putting up with the occasional ads for the personalized streaming experience.
Pandora has also redefined the driving experience. Roughly two dozen carmakers now make it practically seamless for smartphone owners to stream Pandora through their car speakers via Bluetooth connectivity.
Beyond the market leader
It's easy to see why Pandora dominates this niche. Line up the 20 largest U.S. Internet radio service providers and Pandora's slice of the market is a whopping 71.7%. However, there are plenty of other platforms that are starting to gain traction.
- Reports this month indicated that overseas darling Spotify -- where listeners pick the exact tracks that they want to hear -- was in the process of raising money at a level that values the international music service at a whopping $4 billion. Spotify was introduced in the U.S. last year.
- Clear Channel's (CCMO.PK) iHeartRadio announced late last week that it has landed 10 million registered listeners since relaunching the online radio service in the fall. Clear Channel may own hundreds of traditional AM and FM stations, but even it sees the power of streaming.
- Sirius XM Radio (SIRI) may have more than 22 million subscribers, but the satellite radio service is also making sure that it beefs up its streaming offering. New receivers and its new Sirius XM 2.0 platform broaden the number of available channels, paving the way for a personalized music service of its own.
The Spirit of Internet Radio
Pandora may be exploding in popularity now, but it's been around for a long time. The service was introduced a dozen years ago solely as a desktop platform. Pandora's Music Genome Project would break down a catalog of music to identify similar traits in matching tunes to visitor tastes.
It was a well-received project for PC users, but the mobile revolution is what really took Pandora to the next level.
Things aren't perfect. Less than 13% of its revenue is coming for premium subscribers. It would be nice to see that market grow. There's also the fear that wireless carriers moving to usage-based pricing instead of unlimited data will curb the allure of streaming chunky media files. Last year's IPO buyers will also be quick to point out that the stock is still well below last year's $16 IPO price.
This may all be true, but the metrics don't lie. Internet radio in general and Pandora in particular are booming right now.
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.