* CEO to depart, search for successor begins
* Surprise announcement comes same day Pandora reports solid
* Revenue growth strong but profit growth still lacking
By Malathi Nayak and Jennifer Saba
SAN FRANCISCO/NEW YORK, March 7 Pandora Media
Inc CEO Joseph Kennedy is stepping down and the search for
a replacement has begun, a surprise announcement that came the
same day the Internet music service reported
stronger-than-expected quarterly results.
Shares of the company, the leader in Internet-streaming
radio, leapt 20 percent immediately after it reported results
and forecast better-than-expected revenue for the first quarter
of fiscal year 2014.
Kennedy's abrupt departure comes as Pandora is gaining
market share and growing revenue, but still struggling to expand
its profit. The company also has to grapple with intensifying
competition from current rivals Sirus XM Radio and
Spotify, as well as potential future entrants such as Apple Inc
"As I approach the start of my tenth year, my head is
telling me to get to a recharging station sooner rather than
later," Kennedy told analysts on a conference call.
Kennedy said his decision to step down was "pretty recent"
but did not elaborate.
The former auto industry executive and amateur piano player,
who confesses on his Pandora profile to being a pop music
junkie, has led the company since July 2004. He will remain in
his current role until the board names his successor, Pandora
Under his watch, Pandora grew to become the world's largest
online radio service with over 67 million monthly listeners
The Oakland, California-based company said that mobile
revenue, an important metric, more than doubled to $80.3 million
for the fourth quarter. But it reported a fourth-quarter loss of
4 cents a share, compared to 3 cents a year earlier, as the cost
of obtaining streaming licenses and expanding its salesforce
Pandora makes money from user subscriptions and advertising,
but analysts say it needs to focus more on the latter to boost
its bottom line.
For the past decade, Pandora has been gaining market share
as it becomes more popular. But as it attracts more listeners,
Pandora has to pay more to license music.
"The big revenue growth is a positive. The lack of earnings
growth tells you costs are rising pretty fast," Michael Pachter,
analyst at Wedbush Securities said.
"I'm hopeful Joseph Kennedy is replaced by a guy who's got
kind of an ad sales model and ran a radio station and is all
about selling ads," Pachter said. "That's something they can do
a lot better."
LICENSE TO STREAM
Kennedy becomes the latest consumer dotcom chieftain to cede
his post, after Groupon CEO Andrew Mason last week
departed the daily deals giant he co-founded. Like Groupon and
many other consumer dotcoms that debuted in the second half of
2011, Pandora's share price has headed steadily south since its
June 2011 IPO.
Including Thursday's after-hours surge to $14, its shares
are now down more than 12 percent from its $16 debut price.
They closed at $11.73 on the New York Stock Exchange.
Pandora said it expects revenue in the first quarter of $120
million to $125 million, surpassing analysts' expectations of
The company said fourth quarter revenue rose 54 percent to
$125.1 million. Analysts were expecting $122.8 million,
according to Thomson Reuters I/B/E/S.
Last week, the Oakland, California-based company said it
would cap free mobile listening at 40 hours per month as it
tries to overcome rising royalty costs.
Analysts believe the company capped mobile streaming because
while its mobile advertising sales continue to rise, it is
behind rising royalty payment costs.
Pandora's per-track royalty rates have increased more than
25 percent over the last 3 years, including 9 percent in 2013
alone and are set to increase an additional 16 percent over the
next two years, co-founder Tim Westergren wrote in a blog posted
last week on the company's website.