What's To Like About Pandora's Latest Earnings?

In a report published Monday, Barrington Research analyst Jeff Houston commented on Pandora Media Inc (NYSE: P)'s first quarter results, noting that the company's strong performance was driven by accelerated listener engagement, mobile monetization and business-model leverage.

Shares remain Outperform rated with an unchanged $20 price target.

Houston noted that Pandora's listener hours of 5.3 billion marked an increase of 11 percent year-over-year, while the company improved its radio listening share to 10.0 percent from 9.1 percent a year ago. Mobile revenue jumped 35 percent year-over-year to $181.1 million, despite the fact that 84 percent of listener hours occur on mobile devices, while only 78 percent of ad revenue is derived from mobile use.

Houston said that Pandora's local advertising revenue rose 67 percent year-over-year to $43.3 million and represented 24 percent of total ad revenue with the remaining 76 percent of ad revenue coming from national ads.

Related Link: Pandora...The Day After

Pandora already has scale, as it is the number one radio station in 14 of the top 15 local-radio markets with 300 salespeople in 37 markets. The company's ad buying platform integration allows potential ad buyers to compare Pandora's audience size with other local radio stations in 276 markets. In addition, the streaming radio service is available on around 1,000 different consumer electronic devices. Pandora's success in expanding its monetization and ad revenue depends on the company's ability to scale its salesforce and execute.

Nevertheless, Houston argued that Pandora's "battle" for fair royalty rates is a main concern that are resulting in "uncertainty" for the stock. The analyst added that he is "cautiously optimistic" that the rates the Copyright Royalty Board (CRB) will set for Pandora in December will be "favorable" – that is roughly unchanged from current levels.

Finally, Houston speculated that after the royalty rates are set at the end of the year, Pandora's management will focus towards expanding its product to new international markets.