Pandora (P): User Base Continues to Languish - RBC

RBC Capital analyst, Mark Mahaney, reiterated his Sector Perform rating for shares of Pandora (NYSE: P) after revenue of $343MM (up 20% Y/Y) came in 3% below Street consensus at $352MM, and below guidance of $345-355MM. EBITDA of $(25)MM was also below Street at $(24)MM. Management slightly decreased FY16 revenue guidance while maintaining EBITDA. Q3 Revenue guidance of $360-370MM was below Consensus of $378MM while EBITDA guidance of $(5)-5MM just met the Street.

Keys to the quarter:

1) Topline Softness: Mgmt saw softness in the National Entertainment and Telecom verticals in Q2 and had uncertainty around the political ad outlook. This translated to the Q2 Revenue miss and reduction of FY16 Revenue guidance by 2% at the mid-point.

2) User Metrics: Q2 Active Listeners of 78.1MM (well below RBC/Street ests of 79.8/80.1MM) decreased both Y/Y and Q/Q by 1.3MM, a clear point of concern. Competitive pressures likely at play here. On the bright side, engagement was at an all-time high with Hours / User accel’ing to 8% Y/Y (record high 24.0 hours) and total Hours growing 7% Y/Y.

3) Gross Margins: While they are down Y/Y (as expected due to the new CRM), GM was up 640bps Q/Q which gives us continued confidence of leverage in the model as RPMs continue to grow.

4) Pricing Growth: RPM of $56.56 grew 5% Y/ Y, decelerating 9pts but on a 14pt tougher comp.

5) On-Demand Service: Remains on the near-term horizon, with mgmt expecting to launch their first version by year’s end, though contracts are not yet in place.

No change to the $13 PT.

For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.

Shares of Pandora closed at $12.00 yesterday.

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