Pandora Predicted To 'Dominate' Web Radio For Next Few Years With concerns about profitability and iTunes Radio about to launch, there's a lot of uncertainty around Pandora's future. But one recent report from IBISWorld claims that Pandora will continue to dominate web radio. Given that its stock recently hit new highs and mobile advertising is showing strong growth, Pandora actually has a lot going for it at the moment. The recently teased IBISWorld report (via RAIN) notes that over the last five years: "The number of mobile internet connections grew at an annualized rate of 53.0% during the five- year period. 'As such, internet radio's audience increased an annualized 16.5% during the same period, far outpacing traditional radios,' according to IBISWorld industry analyst David Yang. Consequently, internet radio broadcasters have taken a larger slice of advertising revenue from the $17.3-billion Radio Broadcasting industry." Though citing positive usage and ad growth stats for web radio, the report also pointed to challenges with profitability due, in part, to the much higher royalty rates web radio broadcasters pay than do terrestrial radio broadcasters. The IBISWorld analysts expect leaders such as Pandora, iHeart Radio and, most likely, the soon- to-launch iTunes Radio to maintain their lead with Pandora continuing to "dominate the marketplace as new entrants will have a difficult time attracting listeners away from well- established services." They also expect future competition to be limited, in part, "as new entrants will hesitate to enter the industry due to the inability of major players to operate profitably." So Pandora's leading in a race with many challenges. Pandora's Mobile Ads A Bright Spot Pandora recently removed the 40-hour limit on free mobile listening with the expectation that this move might undermine subscriber growth. They maintain that such a move is positive because they've found ways to curtail those who go over 40 hours. In addition, this move "reinforces the success we are having with monetizing and selling ads on mobile platforms," according to chief revenue officer John Trimble. Pandora's mobile advertising is said to account for "70% of Pandora's total ad revenue." It turns out that some of that growth is in local advertising, an area in which Pandora is investing additional resources. As Trimble revealed: "We've grown the sales force by 73% year-over-year, and a lot of that is to compete directly for that $15 billion of broadcast radio advertising. More specifically, while we did it on a national level, we pushed extremely hard into the local markets. Last year at this time we were in approximately 8 to 10 markets; we're now in the top 28 radio markets." It's hard to predict the future but the market has recently given an overall thumbs up when one looks at Pandora's historical stock prices which have returned this summer to Pandora's earliest highs. Hypebot Senior Contributor Clyde Smith (@fluxresearch/@crowdfundingm) also blogs at Flux Research and Crowdfunding Pandora reported total mobile revenue growth of 92% year-over-year, according to the company‘s earnings released last week. That puts Pandora‘s mobile revenue at $116 million, almost 72% of total revenue, up significantly from a 65% share last quarter. More than ever, Pandora is a mobile-first company, and its efforts to build a media business around mobile advertising make it a bellwether for the industry. In the recent past, Pandora seemed to be struggling to monetize mobile effectively. The company even saw its RPM rate, the amount of revenue it could command for a thousand advertisements, decline in recent quarters. But this past quarter it accomplished a 180-degree performance turnaround. Pandora‘s RPM rate jumped 52% compared to the same quarter last year, and 39% compared to the prior quarter. Pandora executives have attributed the impressive mobile numbers to app improvements and bulked-up efforts to sell locally targeted ads. Pandora has improved its ad revenue picture enough that it now feels confident lifting its 40- hour-per-month listening cap for free mobile users, despite the increased content licensing costs that will bring. The end of the 40-hour cap could also be seen as a preemptive defensive tactic against the expected September launch of Apple’s iTunes radio streaming service Inside Radio News Ticker…Listeners notice Pandora ads…Three-quarters (77%) of Pandora users say they‘re aware the streaming service runs commercials. Two-thirds (68%) know all too well that there are pop-ads too. That‘s according to an Ipsos Media survey of 18-49 year olds conducted in July. No data was released on other streaming services. Pandora says it‘s not ramping up its inventory loads, just selling more of the available inventory 8/13: Targeting ads to individuals makes Pandora competitive locally, it says Pandora sales VP explains local ad strategy to Twin Cities business journal Posted by: Paul Maloney In local sales efforts, leading webcaster Pandora is positioning itself as the number-two radio station in the Minneapolis market (like it does in several others). Pandora regional VP Gabe Tartaglia discussed some of the webcaster's competitive strategies with Minneapolis/St. Paul Business Journal's John Vomhof. But it's more than the sheer number of listeners that gives the webcaster a foothold locally, Tartaglia contends. It's its ability to target advertising not by station format, but to the listener herself. "We've got over 700,000 listeners in the Minneapolis DMA every month, and every week, if you take a demographic like adults between 25 and 54, we have about 400,000 listeners," Tartaglia, who's based in Chicago, said. He characterized their ad rates as "pretty competitive," with the big value coming in targetability. Pandora registration requires the listener's age, gender, and ZIP code. This means Pandora can track users across channels. "So, if a local advertiser wants a very custom geography or wants to reach an exact age or gender, we can provide that exact demographic with 100 percent guaranteed delivery and zero waste," Tartaglia explained. Think about it in terms of the individual listener, not the genre of music they're listening to or a particular artist. Most advertisers want the person. They want the consumer who can hopefully become a potential customer," he continued. "So, if a person is listening to a rock station and then changes to a country station, to us, that's one listener and we an still serve the same targeted adds to that person." Pandora's biggest local categories and clients include automotive (about 10 different local dealers), health care, and education (University of Minnesota, Globe University). Why We Remain Skeptical of Pandora: Lowering Estimates, Raising Price Target to $10, Reiterate SELL Posted on Thu, Aug 22nd, 2013 at 7:25 am by Richard Greenfield — POSTS | DISCLAIMERRSSEmail Phone: 646-450-8680 Categories: Media, Equity Research, USA, Internet, Report Tags: Music, Radio , P On September 21, 2011 (click here), we lowered our Pandora price target to $3.75 when the stock was trading at $10.17. If you were to extract our reasoning from that note we cited (1) threat of competition, (2) lack of social in Pandora and (3) we lowered our longer term estimates. In other blogs around that same time, we had also written extensively about our view that royalty rates would end up higher starting in 2015, in contrast to the consensus view that they would head lower. Despite Pandora‘s improving near-term fundamentals, we were increasingly skeptical of their long-term profit potential. We have certainly made mistakes in our analysis of Pandora, most notably tied to social, competition and brand equity. Pandora shares have rebounded from a low of $7.08, with shares currently at $21.52, just off their 52-week high. Increasingly obvious that social is simply not that important to music. Curation matters far more than social and we have seen competitors such as Spotify focus on the lean back nature of their service, similar to Songza. Curation is why terrestrial radio remains so vibrant. While competition may have slowed Pandora‘s growth, Pandora‘s active monthly users have exceeded our expectations over the past 18 months. In fact, Pandora stock has now largely stopped responding to competitive threats, with the June 10, 2013 announcement of iOS7′s iTunes radio marking a recent bottom in the stock. Pandora does has significant brand equity. Consumer perception of the Pandora brand and being early to each and every new IP-enabled device/platform has real value and has continued to drive new user acquisition (albeit growth has notably slowed). We believe brand is the key reason Pandora has overcome the competitive threat from frankly better products such as Songza. So Pandora clearly has value. They have a large, active user base, a growing local ad salesforce infrastructure, brand equity and a simple, easy-to-use app spanning a wide array of platforms and devices. The question remains what is this all worth? Despite our current year forecast for Pandora revenues to reach $635 mm of revenue, the company is only beginning to generate positive EBITDA and earnings. Pandora, therefore, very much remains a concept stock, with shares impossible to value on current/next year earnings or cash flow. The stock has moved notably higher on expectations of a rapid acceleration in mobile RPMs in fiscal April Q2 (as Pandora has started to move their mobile ad-load higher), at the same time that listening hours have slowed (due to the self-imposed, mobile usage cap earlier this year) leading to modest profitability.