Pandora’s Q3 mobile ad revenue had president and CEO Brian McAndrews singing from the rooftops – but the singing stopped when he got to the verse about monthly active users (MAUs).
Total revenue for the quarter clocked in at nearly $240 million, a 42% YoY increase. A whopping $188 million of that sum is mobile ad revenue, accounting for 78% of total revenue. Advertising revenue overall increased 44% in Q3 to $194.3 million versus $135 million in Q2 2014, and local advertising revenue also grew, jumping 118% YoY to $41.8 million.
“We continue to close the gap between advertising and consumption on mobile,” McAndrews said, noting that 84% of total listening hours – which increased 25% – took place on a mobile device in Q3.
But while Pandora’s growth is impressive, investors seemed concerned about Pandora’s less-than-stellar MAU numbers, which basically flatlined this quarter – as they did in Q2 – increasing just 5% from from 72.7 million to 76.5 million.
To that, McAndrews said that “expecting active monthly user growth at historic levels is not realistic,” considering the increasingly competitive environment Pandora plays in [see: Spotify, Google, Apple] and Pandora’s already significant market position. Pandora’s share of total US radio listening was a little over 9% in September, up from 7.7% during the same period last year.
“We continue to believe in the long term opportunity to grow our audience in excess of 100 million monthly users in the US as growing smartphone penetration, connected autos and other devices to accelerate the transition of the 250 million weekly US radio listeners to Internet radio,” McAndrews said.
McAndrews had a contrarian view on the value of the active user growth metric, making the argument that it doesn’t speak to engagement and loyalty, which he sees as more representative indicators of health. The average Pandora user taps into the service for a total of about 10 days per month, up roughly three-quarters of a day since this time last year. McAndrews also said that Pandora will begin to invest more than ever in product, distribution and monetization to encourage loyalty among its users.
Speaking of monetization, mobile revenue-per-mille hit an all-time high in Q3, up 16% to $40.82 YoY.
One reason for the mobile explosion could be the new additions to Pandora’s sales team, which increased by more than 80 reps over the last year.
In answer to an investor question on whether the beefed up sales team is responsible for the RPM party – or whether there’s just been better utilization of inventory through programmatic exchange and self-serve options – Pandora’s CFO Mike Herring didn’t give programmatic too much much credit, at least not yet, calling it “early days.”
“In terms of where that improvement is coming from, it’s definitely from the infrastructure we have in place from a direct selling perspective,” Herring said. “Certainly audio [ads] are far off, but even mobile display is still nascent. We are actively pursuing angles there, but we think that it’s an investment for the next year. We really won’t see a material impact until the back half of 2015 or 2016 from a utilization or pricing perspective coming from programmatic channels.”
