One month after SiriusXM announced that it would acquire Pandora for $3.5 billion in an all-stock transaction, Pandora (NYSE: P) reported its third quarter financials. Highlights for the quarter included total revenue of $417.6 million, a 16 percent increase year-over-year, excluding revenue from Ticketfly and the company’s previous operations in Australia and New Zealand. Pandora also reported subscription revenue of $125.8 million, a 49 percent increase, and advertising revenue of $291.9 million. Pandora added 784,000 subscribers during the quarter, bringing it to 6.8 million total Pandora Plus and Pandora Premium subscribers. By comparison, at the end of its third quarter, SiriusXM had 33.7 million subscribers.

“I’m proud of the progress we’ve made over the past year to reinvigorate Pandora,” said CEO Roger Lynch in a November 5 news release. “A year ago, we committed to drive listener engagement through product innovation, expand our content, and increase distribution partnerships. We also prioritized making our ad tech capabilities a strategic advantage. And we executed. We launched new products like Premium Access, delivering on-demand functionality and improved listener engagement in our ad-supported tier; forged partnerships with leading brands such as T-Mobile, AT&T, Comcast, and Snap; and solidified our global leadership in digital audio advertising with the acquisition of AdsWizz and the launch of our programmatic audio marketplace.”

Lynch, who joined the company as CEO in September 2017, has contributed to the company’s transformation in his short tenure.

“Looking ahead, I couldn’t be more excited about Pandora joining forces with SiriusXM. 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,” added Lynch.

Other financial highlights for the quarter include:

• Advertising revenue was $291.9 million, a 6 percent increase year-over-year.
• Ad RPM was at an all-time high of $77.83, an 11 percent increase year-over-year.
• Total consolidated non-GAAP gross profit was $160.2 million, compared to $131.7 million in Q3 2017.
• GAAP gross profit was $156.1 million, compared to $135.9 million for the same period last year.
• The company’s net loss for the third quarter was $63.7 million, or $0.27 per share, compared to a net loss of $66.2 million, or $0.34 per share, during Q3 2017.
• Adjusted EBITDA was a loss of $3.9 million, compared to a loss of $5.3 million in Q3 2017.
• At the end of the third quarter, Pandora reported $387.6 million in cash and investments, compared to $420.8 million at the end of the third quarter last year.

Pandora CFO Naveen Chopra commented on the company’s third quarter financials.

“Our Q3 financial results, which exceeded both revenue and adjusted EBITDA guidance, showed meaningful improvement. Revenue growth accelerated, thanks to better monetization and a fast-growing subscription business; gross margins are expanding as evidenced by a 500 basis point sequential improvement in Q3; and we’re operating more efficiently: we recorded a 300 basis point reduction in operating expenses (excluding marketing and subscription commissions) as a percentage of revenue. All of this puts us on track to significantly improve cash flow and adjusted EBITDA next year and beyond,” said Chopra.

Operational highlights for the quarter include:

• SiriusXM’s announced it would acquire Pandora, as noted above. Combined the two companies create the world’s largest audio entertainment company. They anticipate pro-forma revenue of $7.0 billion in 2018.
• Active users of 68.8 million and total listener hours of 4.81 billion. These are big decreases compared to active users of 71.4 million and total listener hours of 5.09 billion at the end of the second quarter.
• Pandora partnered with SoundCloud who will use Pandora as its exclusive U.S. advertising and sales representative. This partnership will allow Pandora to reach more than 100 million listeners in the U.S.

Investors didn’t react strongly to the financials. On November, Pandora stock was valued at $8.65 per share. As of 5:11 p.m. Eastern on November 9, Pandora stock closed at $8.79 per share. It is, however, nearly double its stock price of $4.67 per share on November 13, 2017.

Insider Take:

Pandora is showing improvements in subscriber growth and revenue categories, however, the loss in active users and total listener hours is concerning. While growth in subscription revenue is helpful, subscriptions only represent 22.2 percent of total revenue. Advertising represents the lion’s share of total revenue at 72.8 percent with ticketing revenue making up the balance. That said, the relationship with SoundCloud could be a good partnership for Pandora, exposing it to new audiences. We are curious to see what changes SiriusXM will make to Pandora once the acquisition closes in the first quarter of 2019.