Despite significant competiton, Pandora (P) continued to solidify its position in the U.S. web-based radio market in October. Pandora recently announced that listening hours jumped 18.0% from the year-ago month to 1.47 billion in Oct 2013.
Additionally, Pandora’s share of the total U.S. radio listening market surged to 8.10% compared to 6.60% in the year-ago month and 7.8% in Sep, 2013.
We believe that the rise in listening hours may have resulted from Pandora’s change of policy related to listening limits. In September, the company cancelled the listening limits (40 hours per month) that it had imposed on free users. As a result, listening hours nearly matched the 1.49 billion listener hours it had reported in March, prior to the setting up of the ban. Listening hours also improved from 1.36 billion reported in September.
Pandora exited the month with almost 70.9 million active listeners, in comparison to 59.2 million listeners a year ago. However, the number of active listeners declined over the month from 72.7 million in Sep, 2013.
We believe that the slowdown resulted from the recent launch of Apple’s (AAPL) iRadio service. As more and more people try iTunes Radio, we believe that Pandora will lose some market share going forward.
However, we note that Pandora enjoys a first mover advantage in the music streaming industry. We believe that Pandora’s already popular service, driven by its effective discovery engine and well established infrastructure places it well to compete against the likes of Apple, Spotify, Google (GOOG) and Sirius XM (SIRI).
Additionally, Pandora had raised some $400.0 million from stock offering in September. The company expects to use a portion of the proceeds for international expansion. The company will also open new sales offices and compete with radio stations for attracting local advertising, which is a significant opportunity going forward.
Nevertheless, we believe that rising costs related to licensing and intense competition are the major headwinds in the near term.
Currently, Pandora has a Zacks Rank #3 (Hold).
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