Pandora Admits Being Slow To Programmatic As Ad Revenue Flattens

Gaps in Pandora’s ad tech stack slowed growth in the last quarter, CEO Roger Lynch said Thursday in his first earnings call since taking the helm.

“One consistent theme I’ve heard from advertisers is that we don’t have all of the features they need to easily transact with us,” he said. “This is starting to have material impact on our revenue.”

Revenue at Pandora grew 9% year over year (YOY) to $360 million, missing estimates. While subscription revenues jumped 50% YOY to $84 million, ad revenues were flat at 1%, or $276 million.

Shares fell almost 11% to $6 in after-hours trading.

Pandora is struggling with declines in its listener base and a lack of the programmatic and measurement capabilities that advertisers want, Lynch said. Pandora’s manual sales process has caused some advertisers to stop buying on the platform, although Lynch didn’t say how many.

“We know we need to invest in ad tech,” Lynch said. “We need a significant upgrade to our ad technology and what we can provide advertisers. We need to become an easier company to transact with.”

Pandora will invest in engineering resources and focus on products that automate sales, optimize ad campaigns more quickly, better measure ROI and transact programmatically, Lynch said. It will also build out a self-serve business to attract smaller local buyers.

“Today, if you’re a $30 million advertiser or a $300 million advertiser, our [sales] process is the same,” Lynch said. “We don’t really address the smaller advertiser end of the market because we don’t have self-service tools.”

Despite providing two-thirds of digital audio impressions in the market, Pandora has been notoriously slow to develop ad tech. The platform launched programmatic video for the first time this year and still doesn’t sell audio inventory programmatically, although Lynch said it will do so soon. Spotify launched programmatic audio in mid-2016.

“Because of the urgency, we’re going to look carefully at both build vs. buy options,” Lynch said. “If we’re successful, we can intelligently raise ad load, increase sell-through, command premium pricing and drive revenue growth, all while protecting the listener experience.”

Lynch said the company will do its best to fund those investments internally. Investors, however, shouldn’t expect a quick return.

“There’s nothing near-term that’s going to happen on that front,” Lynch said. “We’ve really got some work to do there.”

In addition to flat ad dollars, Pandora’s losing attention from its audience in a competitive streaming environment. Total listener hours for the quarter shrank to 5.1 billion from 5.4 billion last year.

To bring listeners back, Pandora will add new forms of content like podcasts and integrate with devices such as connected cars and voice-activated systems. Pandora is already available on more than 2,000 connected devices, and listening on voice-activated devices grew 300% YOY, Lynch said.

“It is essential that we grow our base of listeners,” Lynch said. “We will harness our scale, distribution, data and discovery capabilities to deliver non-music content in a very unique way.”

Pandora also hopes to draw listeners back to its platform with a better ad experience that focuses on reward-based units, such as videos that offer skips, replays and sponsored listening sessions, which reduce ad load for listeners.

“All of the elements are here to do that,” Lynch said. “We just need to bring them together. There’s no silver bullet here that’s going to come in and all the sudden solve all these problems.”

This post was syndicated from Ad Exchanger.