Were Pandora Media’s May Metrics Really That Bad?

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Pandora Media (NYSE:P) is down 2.5 percent on Wednesday after reporting audience metrics for the month of May that disappointed Wall Street. Over the last several months, Pandora investors have monitored such metrics closely, especially given the rise of Apple’s (NASDAQ:AAPL) iTunes Radio, and clearly didn’t like what they saw.

In May, Pandora reported 77 million active listeners, up from 76 million in April and 70.8 million in May 2013. Therefore, this particular metric looks good and gives the illusion that Pandora is faring well in the face of increased competition from Apple.

However, Pandora also reported that its share of the total U.S. radio listening market fell from 9.28 percent in April to 9.13 percent in May despite having more listeners. These numbers, although not a tremendous decline, are causing investors to become a little worried following the Apple-Beats deal combined with reports that iTunes Radio has already topped 40 million listeners in only a year’s time. Not to mention news of Amazon (NASDAQ:AMZN) launching its own music service for Prime members isn’t helping matters, either.

With that said, investors might naturally ask the question of which metric is most important: active listeners or listening market share. Also, how could the two metrics differentiate?

Essentially, Pandora’s growth in active listeners shows that consumers are still using its services and that it has in fact gained new listeners. However, a decline in market share is likely a good indication that listeners aren’t spending as much time using Pandora’s service and that it might have peaked with a market share around 9 percent.

In retrospect, a 9.13 percent market share of a large U.S. music listening market is not bad. But the problem is that Pandora counts on growing listeners and listening hours to drive advertising dollars. Also, the company needs high listening hours to ensure that users see value in its Pandora One service, which is a pay service that removes advertisements.

All things considered, it’s no surprise that Pandora shares fell on Wednesday and that it has seen stock losses of 38 percent in the last three months. The $5 billion company faces a real challenge in trying to compete against Apple after having the luxury of operating in a market with limited competition for the better part of the last five years. Pandora must now share this market and try to create new ways to monetize its platform.

Many believe that Pandora will attempt to monetize its enormous amount of data created from years of users telling the company what songs they liked and disliked, which could be useful for some advertisers and others in the music industry. However, Apple has that same data, as it knows not only what people like but what they are willing to buy via its iTunes Radio platform having the ability to purchase new songs. Pandora therefore has some tough decisions to make and will likely remain challenged, meaning investors should look elsewhere.

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