Pandora to Boost Marketing Budget as Mobile Revenue Climbs

Mobile Ad Revenue Hit $116.8 Million in the Fourth Quarter

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Pandora CEO Brian McAndrews admitted on Wednesday that the digital radio service has seen an impact from Apple's iTunes Radio launch. That didn't stop Pandora from turning a $9.0 million profit in the fourth quarter of 2013, but it likely spurred the company's planned marketing push.

"Now that we are generating gross profits in a way that gives us more investment dollars, we'll be slightly more aggressive on that [marketing] front," said CFO Mike Herring during the company's earnings call.

Pandora CEO Brian McAndrews
Pandora CEO Brian McAndrews

In an interview, Pandora's chief revenue officer John Trimble said "we certainly are conceptually talking about how we bring Pandora into the consumer-facing marketing arena, but I don't think there's really anything to go into at this point."

Mr. McAndrews indicated that the marketing will be tied to promoting new product features like an alarm clock mode and station recommendations, which have increased listener hours. Pandora plans to add more, similar services and it will be "spending more in marketing to make sure people are aware of that," he said.

Pandora's monthly listener base continues to grow, but the rate of that growth has begun to ebb. The service attracted 73.4 million listeners in January. That was 12% more than January 2013, but last January's number had increased by 38% over the previous year.

"There's a law of large numbers at some point, and we are very large and are obviously going to see some declines in growth," said Mr. McAndrews, who pointed the upcoming features as a way to attract new listeners.

Those new features will likely be aimed at Pandora's mobile properties. Eighty percent of Pandora listening happens on mobile devices, Mr. Trimble said. And mobile accounted for 72% of the company's fourth-quarter ad revenue.

Mobile advertising revenue continues to outpace Pandora's overall ad revenue. The mobile segment grew by 60% year-over-year to $116.8 million, compared 39% growth to $162.0 million in total ad revenue. Pandora's overall fourth-quarter revenue increased by 52% to $200.4 million, which was just shy of analysts' estimates.

Mobile will also be a focus on Pandora's ad-tech product development front. Echoing the broader digital-media ecosystem, Mr. McAndrews said that the ability to sell ads through computer-automated systems is "one of the larger" priorities he has in mind, and Mr. Trimble termed it "a core strategic initiative" but was unable to share details of the company's plans.

Whatever Pandora's programmatic plans, the company's sales teams shouldn't be concerned about losing their jobs to a computer. Mr. McAndrews said he doesn't plan to roll out a self-serve tool that media buyers would be able to use on their own to buy Pandora ads, like booking a flight through Kayak as opposed to calling up a travel agent. In fact the company added 101 salespeople last year to total roughly 270 and plans to add more during the first half of this year, said Mr. Herring.

Sales and marketing made up Pandora's second-highest cost category behind content acquisition in the fourth quarter. The segment's expenses totaled $53.1 million, a 72% increase. By comparison content acquisition rose by 31% to $93.7 million.

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