mirchi:

Over the last 2.5 years, Pandora has grown it’s listener hours by almost 4x, from 1 billion hours in fiscal 2009 to 3.9 billion in fiscal 2011.  2/3 of this growth has been from Pandora’s mobile platform.  Launch in July 2008 with it’s iPhone app, Pandora’s mobile platform now accounts for greater than 50% of the company’s listener hours.  Over the same period, Pandora’s revenue has grown more than 6x, from $19 million to $138 million.  It’s a great story - significant mobile adoption and top line growth, except for one disconnect…

While mobile usage has driven the bulk of Pandora’s listener growth over the lat 2 years, it’s driven very little revenue to date.  The revenue growth has come from Pandora ramping up its online display advertising.  While this revenue growth is a clearly a good trend, Pandora needs to demonstrate it can turn a profit on its mobile platform.

Pandora’s fundamental challenge is that it has hard costs associated with each listener hour, regardless of platform. Unfortunately, the online advertising market is much more mature than the mobile market ($8.5 billion vs $743 million in 2010).

As Pandora moves into the mobile market, it’s opportunity is going to be driven much more by audio ads and local customers, as opposed to national advertisers buying display ads.  While this is still a nascent market, the goal is to start capturing a share of the traditional radio advertising market ($15.7 billion in 2010).

Given the importance of mobile listeners to Pandora’s overall growth, Pandora has to significantly ramp up it’s mobile monetization (or switch to more of a subscription driven model, which hasn’t been the primary focus to date).

If Pandora can do this, they have a large market in front of them.  They are just starting to enter the automotive market, which could be another huge source of listener hours. It’s also a key listening environment if they really are going to start capturing traditional radio advertising $.