Pandora (P) continues to solidify its position in the U.S. web-based radio market, as listening hours jumped 18.0% from the year-ago month to 1.49 billion in Nov 2013. Listening hours were also slightly better than 1.47 billion reported in October.
Additionally, Pandora’s share of total U.S. radio listening market surged to 8.44% compared to 7.17% in the year-ago month and 8.10% in Oct 2013.
We believe that the rise in listening hours may have resulted from Pandora’s change of policy related to listening limits. In September, the company cancelled the listening limit (40 hours per month) imposed on free users.
Pandora exited the month with almost 72.4 million active listeners, in comparison to 62.4 million a year ago. However, the number of active listeners declined over the month from 72.7 million in Oct 2013.
We believe that the slowdown resulted from the stiff competition the company is facing from Apple’s (AAPL) iRadio service. As an increasing number of people try iTunes Radio, we believe that Pandora will lose some market share, going forward.
However, we note that Pandora enjoys a first mover’s advantage in the music streaming industry. We believe that the company’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 (GOOG) and Sirius XM (SIRI).
Additionally, Pandora had raised approximately $400.0 million from stock offering in September. The company expects to use a portion of the proceeds for international expansion. The company will also open new sales offices and compete with radio stations for attracting local advertising, which is a significant opportunity, going forward.
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).
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