Pandora Listener Hours Up in May - Analyst Blog

Despite intensifying competition, Pandora P recently announced that listening hours jumped 28.0% to 1.73 billion in May, 2014, which reflected steady growth in the U.S. web-based radio market.

However, shares of Pandora were down 2.8% to $23.91 on June 4, 2014 following the U.S. Justice Department's decision to review decade-old files for paying licensing fees to songwriters and composers. This may in turn adversely affect the royalties paid by Pandora, Apple AAPL and other such music streamers.

Although this may emerge as a major headwind for Pandora, we believe the company's growing popularity will be a major positive in the long run.

Pandora's share of the total U.S. radio listening market surged to 9.13% compared to 7.29% in the year-ago month. However, its market share declined from 9.28% in Apr, 2014.

We believe that the slight monthly decline in market share is primarily due to the strong competition from Apple, The iPhone-maker's $3.0 billion deal to acquire Beats Electronics poses significant threat to Pandora over the long term.

Pandora exited the month with almost 77.0 million active listeners in comparison to 70.8 million listeners a year ago. Moreover, the number of active listeners increased from 76.0 million in Apr, 2014.

Earlier, on Mar 6, 2014, the company had announced that the May 2014 listening metric will be its final metric to be released on a monthly basis. However, the company will continue with the prevalent practice of providing listener metrics on a quarterly basis in its periodic filings.

It is noteworthy 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 (GOOGL) and Sirius XM SIRI.

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).