Pandora’s Latest SEC Filing Offers More Insight Into Internet Radio Business
For fans and investors of Sirius XM (NASDAQ:SIRI) Pandora can sometimes be a taboo word. While the Internet radio provider is acknowledged as competition by Sirius XM’s own management, some readers would rather ignore the music service than find any way to compliment it. I have a better solution. Better to understand Internet radio as much as possible, because Sirius XM is going to be doing a lot of business on the Internet going forward.
According to the latest SEC filing Pandora now boasts 94 million registered users. This is up 15% from last quarter, and up an incredible 77% year over year. The first lesson to learn here is that smartphones are carrying a huge impact on the Internet radio business model. Now, having a satellite radio website I already can predict that readers will scoff at the 94 million figure. For those that want a dose of reality, the number of active users is 34 million, up from 18 million a year ago. Active users are defined as the number of distinct registered users that have requested audio from servers within the trailing 30 days to the end of the final calendar month of the period.
Some love to challenge Pandora’s ability to make money. In Fiscal 2011 the company had revenue of $137 million. In the last three months the company reported revenue of $51 million. Implied across 4 quarters, the company is on a pace to report over $200 million in revenue. Of the $51 million in revenue over the past 3 months, 14.5% of it is from subscriptions to the premium service. That implies an annual return of $5.88 per active user. This number is substantially higher (over 300%) than the $1.68 per year Karmazin used in his recent presentation. I bring this up not to slam Karmazin, but to point out that the numbers going forward for Pandora show stark improvement and growth over the 2010 numbers Karmazin used. Indeed, comparisons will happen, and the numbers at Pandora are showing continued improvement. Pandora’s ARPU (using active users) was $0.40 one year ago. The ARPU last quarter was $.0.50, an increase of This represents 25% growth in ARPU year over year.
Pandora usage is also increasing substantially. Listening hours grew 129% to 1.6 billion in the last quarter, up from 700 million in the first quarter of 2010. Not only is Pandora gaining active users and subscribers, but they are also listening more often. This is yet another indication of how important the smartphone market is in audio entertainment. It is also valuable information for advertisers. Compared to last year the reach of Pandora is now far more substantial. Pandora is competition for Sirius XM, but not the biggest threat. The biggest threat is Apple, Google, and terrestrial radio. However, companies like Pandora do take up pieces of the pie that might otherwise have gone to Sirius XM. As terrestrial continues to lose market share Sirius XM wants to be the biggest benefactor.
There are a few things that are very positive here for Sirius. Comparisons between the two companies will be natural now that Pandora is going public. For example, while Pandora’s 25% jump in ARPU is great compared to Sirius XM’s recent decline in the metric, the overall numbers distinctly favor Sirius XM, which boasts an ARPU of over $11. Another key metric is what Pandora is able to garner in advertising revenue. Their $43.6 in ad revenue dwarfs Sirius XM’s 16.5 million. Rather than looking at that as a negative, perhaps Sirius XM should see what it is that Pandora is doing to garner such impressive numbers. One item that Pandora does that Sirius does not is advertise on their web pages. Sirius XM promises a commercial free music experience, but they do not promise that the various channel pages on their website are ad free. SiriusXM.com is the 613th most popular website in the United States according to Alexa, and the spaces on the channel pages would be extremely valuable to advertisers. Perhaps this is a new revenue stream Sirius XM will consider in the future. I find the prospect compelling because they would even garner revenue from non-subscribers who visit the channel pages.
Why is it important to watch Pandora? The answer is simple. Sirius XM is broadening their Internet radio horizons. With Satellite Radio 2.0 the Internet side of the business will become even more important. Investors want to see revenue grow, and Internet radio can provide that in several ways. From apps on smartphones to apps on televisions, Sirius XM Internet radio will become more and more important.
Once Pandora goes public it will be interesting to see how the numbers shake out quarter after quarter.
Position – Long Sirius XM
Pandora is used by mostly all college kids who can’t afford to pay back college.
Thanks Spencer. A person by the board name of pacs_1999 went to the recent shareholder meeting and reported that;
Mel said they were going to expand the World-Wide internet access capabilities. The infrastructure is already in place. What a cash cow this will be. If they were just to charge 5 bucks. WOW!
I don’t know is Sespools comment is serious or in jest, but it would be a true statement if the word “mostly” was removed. The demographic pointed out is only a fraction considering the other demographics [BTW, college kids are usually considered a desirable demographic]. And one should note that nothing in life is free – these folks have considerable primary monthly fees (internet, smart phones & service, computers…) to receive the “free” Pandora service.
About Me: I read this blog from time to time and realize that most of you are stock holders and very pro SXM. At one time I was very pro XM customer – an early adopter from the beginning, but there is nothing left of that now. I used this service for the music programing that I was not able to get on FM. I am not interested in talk radio, news, shock jocks…if you are interested in these things, then I suppose that SXM is still somewhat relevant. Unfortunately the music content is no longer acceptable and ironically FM seems to be broadening its horizons (recently at a friends business in Columbus OH and caught some of CD101, not bad), but I don’t want to get into that argument.
Pandora: I have used them all. Slacker came onto the scene at the S/XM merger. I was able to cache the stations and use Slacker in the car with no internet connection. XM was gone and I didn’t look back. Later I got a smart phone and found that I much preferred Pandora’s music selections and app stability – so now I am using Pandora. I recently drove from MD straight through to Miami FL and only lost Pandora service once in NC and once in SC for about a half hour each time.
My Point: SXM lives off of the OEM channel to make the numbers. I suspect that a lot of the current customers (mom and pops?) don’t have any passion for the programming content. This will change as the mom & pops fade away and those “college kids” with there broadened horizons (and Pandora) take over.
Denny, at the end of this year sat 2.0 will be released to retailers, then auto manufacturers. It is easier to copy and improve upon, then to try and create content.
I’m not sure i agree, Denny. I think it’s HARDER to attract older listners to Sirius, but once they try it, they love it.
My mother=in-law loves it. I have another older buddy (75) who loves it.
The bad news? Old folks are set in their ways and stick with terrestrial.
the good news? old folks can’t get the quality of programming (elvis radio, 40s on 4, 50s on 5, etc.,) on terrestrial radio, especially in the midwest and other places with limited radio service. Old folks still drive cars… (although that’s kind of dangerous, lol) but they’re also a demographic that CAN AFFORD to drive cars…
A bit of improved ad content would be valuable. Here’s hoping the SIRI board folks are paying attention to Sirius Buzz.
Very interesting points. It is obvious that sirius rules the vehicle whereas Pandora is dominating on the internet. The diffreence is that sirius is virtually not challenged in the auto by anyone whereas pandora is facing fierce competition on the internet and mobile devices, including from sirius. The way I see it is that Pandora stands to lose while Sirius stands to gain. Pandora’s penetration into auto in the next 3 to 4 years is negligible whereas siri has a great opportunity to move on to the internet and mobile devices in a powerful manner. If Pandora wants to make real money, it will have to start charging more. Ad dollars are limited whereas sirius substantial auto growth is at least for another decade. Content and money will win. Sirius has both.
@Denny. People’s taste in radio change and so does the necessity to include other information while driving. There will always be “mom and pops”. I just turned 40 and after listening to Stern since 1988, that kind of programming is getting a bit old, so I’m glad I can change the channel when I want. Let’s not forget the content folks!
i used to love sirius , when they merged with xm, they cancelled alot of good channels, mainly dance channels, there used to be 10 , now there are only 2, i liked boombox, the beat ,the system,strobe, chrome, now with pandora and slacker, i can play any artist or song i want to hear, my age is 48.
In my mind the fact that I don’t have to pay for each and every device I listen to Pandora on puts it ahead of Sirius. I’ve had a Sirius subscription for years for a radio, now if I want to listen on my pc that’s another fee, if I want to listen on my droid that’s another fee…not to mention that if I want to listen to “xm content” I have to pay yet another fee for the “best of XM” package. I like my Sirius radio in my car/home but I’m getting very close to being nickel and dimed to the point of canceling.
bill garrison, I’m 72 and listen to different music than you. Be that as it may, I agree with you about the music quality of SiriusXM.
After the merger, it appears they went for cheap help. I’ll use just one example, ch. 4, the 40s, really was more like the 20th Century ch. Bob Moke, who managed the channel, presented a wide variety from instrumentalists, vocalists, ballads, big band, novelty, like Spike Jones. Now, they have some kid there who thiks the 40s was essentially big band.
I make a 700 to 1,000 mile trip every month, most of it on Calif. freeways, where the traffic is never light. The last thing I need is to hear a constant stream of up tempo band music, like Gene Krupa banging away on his drums.
On the subject of Pandora, I’m not a fan. Everytime I select some artist, they also give me some others I don’t want to hear. For example, I like Al Bowlly, a British vocalist from the 30s. Pandora decides I should also have Sinatra and Crosby along with him. No thank you.
In summary, Pandora and other interent radio are music services. SiriusXM is a full spectrum broadcasting service with unmatched reception and a user friendly technology.
get a grip people. value. value. value. i just activated my 3rd radio on my boat that siri so graciously purchased for me.
An excellent article Spencer. The biggest problem that old school guys such as Karmazin (heck even me – a43-year-old ex-journalist and radio guy) have is trying to imagine a profitable website. How do we get advertisers to pay more for internet ad content????
But while revenue from internet ads is certainly small (How much are you making from your site?), internet advertising is certainly the wave of the future. Print media is dying. it may take 20 years, but computers/phones/mobile devices are the wave of the future…. Enough of those little ads ADD UP after awhile.
keep up the good work, my friend.
Dave
donnie….
The internet model can make a lot of money for a comapny such as Sirius XM. According to alexa they are in the top 700 sites in the united states.
It costs virtually nothing to implement the ads, and anything they get would be gravy.
My AT&T internet service, which has been very realiable, was out for several hours this morning, probably do to high winds.
Yet, my Sirius radio wasn’t missing a note or a word. Satellite radio is No 1 in reception.
Really? The Sirius XM feed has been skipping for over a week now. All we know is that they are “working on it.” Not to mention it drops out when I drive under an overpass, trees, or power lines. I love Sirius XM but… are they really #1 in reception?