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Pandora Media’s Key Metrics in 3Q15

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RPM and LPM

Pandora Media (P) announced its 3Q15 earnings on October 22, 2015. The company uses two key metrics to gauge its profitability:

  • RPM: revenues per thousand listener hours
  • LPM: licensing costs per thousand listener hours

Pandora Media tracks RPM for revenues from its ad-based and subscription service to gauge the company’s monetization of listening hours. On the other hand, the company follows LPM to track its content costs. LPMs are fixed licensing costs that are revised annually.

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Revenues per thousand listener hours

The company had a high RPM of $60.52 in 3Q15, an increase of $12.52 year-over-year. Pandora’s advertising RPM in 3Q15 was at a high of $56.84, up by 28% year-over-year. It indicates that the company is experiencing monetization success through the selling of premium advertising units. It has increased the pricing of advertising units across audio, display, and video mediums.

The company has built up a local advertising sales force that resulted in local advertising revenue being 25% of total advertising revenue of $254.6 million in 3Q15.

As the above chart indicates, mobile and other connected devices contributed a significant 82% to the company’s total revenues of $311.6 million in 3Q15, while computer and desktop contributed the remaining 18%. Mobile and other connected devices contributed $255.2 million to the company’s revenues in 3Q15.

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RPM forecast

The company’s new mobile programmatic ad-buying offering contributed $4 million in revenues until September this year, and the company expects this offering to continue to boost its revenues in 2016 and the future.

Pandora expects RPM to stay high but expects it to increase only slightly in 4Q15, as much of the company’s sales of premium advertising units have already been factored in the 3Q15 RPM.

LPM

Pandora had total LPM (licensing costs per thousand listener hours) of $41.06 in 3Q15, up by $18.76 over 3Q14. Total LPM increased 10% year-over-year, excluding one-time cumulative charges, to $24.62.

The PowerShares QQQ Trust Series 1 ETF (QQQ) holds 0.42% of Sirius XM (SIRI), a competitor of Pandora Media. The same ETF also holds 8.48% of Microsoft (MSFT) and 13.2% of Apple (AAPL).

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