Can Subscriber Growth Drive Pandora’s Q2?

Pandora (NASDAQ: P) is expected to publish its Q2 2018 results on July 31, reporting on what is likely to be a mixed quarter. Consensus market estimates call for the company to report revenue of $373 million and a loss of 16 cents per share on an adjusted basis. Advertising revenue contributes nearly 75% of its overall revenue, and the company has seen its active monthly users and total listener hours decline steadily over the years. The company expects the advertising to improve as a result of its recently concluded acquisition of Adswizz – which should expand its addressable market. On the other hand, subscription growth is set to continue with growth in premium subscribers. Further, its partnership with Snapchat should help boost Pandora’s paying subscribers over the long run and provide a strong long-term growth opportunity, assuming Snapchat users embrace the concept. In addition, any changes to royalty payments should increase expenses for the company, but could limit damages charged in related lawsuits. Further, the organizational redesign should help it to improve margins. Below, we take a look at what to expect when the company reports earnings.

We have a price of $7 price estimate for Pandora, which is lower than the current market price. The charts have been made using our interactive platform. You can click here to modify the different driver assumptions, and gauge their impact on the earnings and price per share metrics.

For 2018, Pandora remains optimistic about further expanding its subscriber base, driven by podcast services, more device partnerships, and increased music consumption. However, the Snap partnership is unlikely to add significant value to the top line in 2018. The deal, over the long run, should boost ad revenues and could potentially boost Pandora’s paying subscribers, but is unlikely to move the needle much in the immediate term. The company’s recently concluded acquisition of AdsWizz – a digital audio ad tech company – which should likely to expand its addressable market. Given the fact that audio is the fastest growing format in digital advertising, this acquisition makes sense for Pandora. Furthermore, it is expected to be accretive to its earnings as it should help them generate higher revenues from free listeners and should provide decent medium-term growth opportunities. We expect the positive outlook for Pandora to continue into 2018, driven primarily by the massive growth opportunity in the digital audio market, smart speakers, and increased consumption of podcasts.

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