Is the tide turning for streaming music service Pandora? Maybe. Pandora (NYSE: P) wrapped up July with a strong financial report for the second quarter of 2018. Among the highlights are total Q2 revenue of $384.8 million, a 12 percent increase, which exceeded the company’s guidance. Subscription revenue for the second quarter was particularly strong at $113.7 million, a 67 percent increase, excluding Australia, New Zealand and Ticketfly. Pandora discontinued service to Australia and New Zealand as of July 31, 2018, and Pandora closed on the sale of Ticketfly to Eventbrite on September 1, 2017.  

“We made continued progress against our strategy with total revenue growing 12 percent, subscription revenue up 67 percent and ad hour trends improving for the third straight quarter,” said Pandora CEO Roger Lynch in a news release. “New partnerships with top brands like Snap and AT&T, as well as enhancements to our ad tech and programmatic offerings, position us to further accelerate growth and ownership of the expanding digital audio marketplace.”

Other second quarter highlights include:

• In addition to $113.7 million in subscription revenue, Pandora earned $271.1 in advertising revenue. Subscription revenue represents 29.5 percent of total revenue, and advertising represents 70.5.
• GAAP net loss was $92.0 million, or $0.38 per share, compared to a net loss of $275.1 million, or $1.20 per share, for Q2 2017.
• The company ended the quarter with $420.8 million in cash and investments. Pandora used $66.9 million in cash to acquire AdsWizz.
• Pandora launched the Premium Family Plan. For $14.99 a month, up to six people can be billed as one account for ad-free, on-demand music.
• Total listener hours were 5.09 billion, compared to 5.22 billion for Q2 2017.
• At the end of the quarter, Pandora had 71.4 million active users.
• At the end of Q2, Pandora Plus and Pandora Premium had about 6 million subscribers, including 351,000 net subscribers during Q2.
• Content costs represented about 59 percent of revenue in Q2.
• Licensing cost per subscriber was $4.78, compared to $3.11 for last year, largely driven by the shift from Pandora Plus to Premium.

“Our listener and engagement growth initiatives remain priority one,” said Lynch during the earnings call. Ad-hour trends are moving in the right direction, subscriber additions more than doubled versus the first quarter, and MAU trends are roughly in-line with the improvements we saw last quarter. We are bullish about the potential for these metrics to continue improving through a combination of expanded partnerships, marketing optimization and key product enhancements.

The partnerships include the bundling of Pandora Premium with AT&T’s unlimited data plan. AT&T customers do not pay a higher cost for Pandora Premium, and it allows new customers to experience Pandora’s Premium plan. The company said it expects this group of subscribers to yield a higher lifetime value because the bundles will have lower churn rates and acquisition costs. Other new partnerships include a co-marketing deal with Cheddar where both companies are partnered with T-Mobile in promotional offers to T-Mobile customers and with Snap where Snap users can share their music with others.

“This is a great fit for us in terms of audience – we think the integration with Snap will increase engagement with younger users and drive growth for our subscription business. And, it is also a perfect example of the kind of unique partnerships and consumer functionality enabled by our hybrid business model,” Lynch added.

From a subscription standpoint, Pandora has had success with its Premium Access product, converting freemium users to paying subscribers and doubling usage of listeners under age 25. Other changes in the works include a student plan, voice control and Pandora’s Podcast Genome.

Pandora CFO Naveen Chopra offered the following guidance for the third quarter:

• Third quarter revenue will range between $390 million to $405 million.
• Q3 adjusted EBITDA will range between a loss of $10 million and $25 million.

“I’ll wrap up by saying that we’re encouraged by the progress we’ve made this quarter,” said Chopra. “Roger has said this, and I’ll say it too: there’s still a lot of work to do, but we’re on the right path with solid revenue growth, improving audience metrics and improving adjusted EBITDA.”

In anticipation of Pandora’s financial report, stock dropped on July 27 from $8.09 on July 26 to $6.29 on July 30. Since the report on July 31, stock has rebounded to $8.07 per share as of 3:39 p.m. PDT yesterday.

Insider Take:

Like the CFO, we are encouraged to see Pandora’s tide shifting a bit with growth in terms of subscriber numbers and revenue. While subscriptions only equate to about 30 percent of total revenue, the fact that more people are converting from the freemium model through the Premium Access offering and Pandora is fine-tuning its subscription offerings are good signs. As Chopra said, the company has a long way to go, but they are making decent progress. We hope this continues.