Here’s Why Facebook Should Follow Pandora’s Business Model

If you have heard it once, you have heard it a thousand times: Facebook (NASDAQ:FB) has an extremely popular product, but the company needs to monetize its massive user base. Furthermore, it needs to capitalize on the growing movement to mobile. Fortunately, investors looking for an Internet company with a stronger presence in mobile do not have to look too hard.

The ‘P’ in Pandora (NYSE:P) does not stand for profit yet, but the radio Internet company is getting closer. After Wednesday’s closing bell, Pandora reported financial results for the second quarter. The company’s loss widened to $5.4 million, compared to $1.8 million a year earlier. However, excluding one-time items such as $6 million in stock based compensation, Pandora broke even on a non-GAAP basis.

“This quarter exceeded our expectations as our strong momentum continues with both listeners and advertisers,” stated Joe Kennedy, chief executive officer. “In particular, this quarter demonstrated that our mobile monetization strategies are working.”

Compared to last year, Pandora’s total revenue surged 51 percent to $101.3 million. Mobile revenue jumped 86 percent year-over-year, with total mobile revenue including subscription revenue on mobile coming in at $59.2 million. The 86 percent gain was close to the 96 percent growth rate in mobile hours, meaning the monetization gap is narrowing.

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Kennedy explains, “In fact, if one adjusts the mobile revenue from the second quarter of last year to exclude the revenue associated with the single large advertiser we had at that time, our growth in mobile revenue year-on-year actually outpaced the growth in mobile hours.” Listening hours for the quarter amounted to 3.30 billion, exceeding the total number of hours U.S. consumers spent on YouTube (NASDAQ:GOOG) in the same period.

While Facebook users are reluctant to click on advertising when browsing timelines and news feeds, music listeners are already familiar with auditory advertisements. Pandora still has competition from other music outlets such as Sirius XM Radio (NASDAQ:SIRI) and Spotify, but managed to increase its active users to 55 million by the end of July. This represents a 48 percent increase from the same period last year.

Going forward, Pandora plans on maintaining their strong presence by growing in new markets such as Australia and New Zealand. The company also takes pride in upgrading their service to keep customers satisfied. Last week, it released the most comprehensive update in three years for its Android app. Pandora also upgraded their iOS Apple (NASDAQ:AAPL) app about a month ago.

Shares of Pandora surged more than 18 percent on Thursday, as the company also raised its guidance. It now expects full-year revenue to total between $425 million and $432 million, compared to the prior range of $420 million to $427 million.

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