Joe Kennedy resigned unexpectedly as chairman and chief executive of Pandora Media Inc., the dominant Internet radio service, after nine years at the helm.
Kennedy, 53, made the decision after discussions with the board over the company's future, he said in a statement Thursday. The move took investors by surprise, as the shares gave back some of the 26 percent after-hours surge that had followed fourth-quarter results.
"I reached the conclusion and advised the board that the time is right to begin a process to identify my successor," Kennedy said in a statement. He said he'll remain while the company looks for his replacement.
Pandora pioneered Internet radio, growing under Kennedy to 67 million listeners, or 70 percent all U.S. users. While its online and mobile services have eaten into the $14 billion local-radio market, revenue growth hasn't kept up with the ballooning cost of music royalties. The board should seek candidates with radio-sales backgrounds at companies like Clear Channel Communications Inc. or Sirius XM Radio Inc., said Michael Pachter, an analyst with Wedbush Securities.
"They don't need a product development guy," said Pachter, who is based in Los Angeles and rates Pandora neutral. "They need a chief revenue officer." Pandora shares rose 21 percent to the equivalent of $14.36 at 9:20 a.m. in Frankfurt trading.
Thursday, Pandora rose 21 percent to $14.18 in extended U.S. trading, after touching $14.80 before Kennedy's exit was announced. The stock advanced 0.5 percent to $11.73 yesterday in New York, after Apple Inc. delayed a competing service until later this year, according to people with knowledge of the situation.
Royalty Rates Tim Westergren, the company's founder and chief strategy officer, isn't seeking to be chief executive, said a person with knowledge of the situation.
Kennedy's departure has been discussed for some time, the person said.
Charles Sipkins, an outside spokesman for Oakland-based Pandora, declined to comment.
The timing of Kennedy's exit will allow a new chief executive to take over before the January 2014 start of a two-year arbitration process that will set royalty rates beyond 2015.
Sales Growth The decision was "pretty recent," Kennedy said on a conference call. He said he will implement the plan for this year and then "hand the baton to someone who can take the company to the next level after that and levels beyond that." Pandora is gaining listeners from conventional radio broadcasters, ending February with an 8.5 percent share of total U.S. radio listening, according to the company. Potential competition has whipsawed the shares in recent months.
Revenue in the quarter ended Jan. 31 climbed 54 percent to $125.1 million, Pandora said in a separate statement. That exceeded the $122.8 million average of estimates compiled by Bloomberg. Excluding items, the loss was 4 cents a share, smaller than the 5-cent loss seen by analysts. The net loss grew to $14.6 million, or 9 cents, from $8.18 million, or 5 cents, a year ago.
This quarter, the company forecasts sales of $120 million to $125 million, more than the $118.6 million seen by analysts. Excluding items, the company predicts a loss of 10 cents to 13 cents a share, compared with the 10-cent average estimate of analysts.
Audience Ratings "The numbers looked relatively solid across the board," James Marsh, an analyst at Piper Jaffray & Co. in New York, said in an email.
"Guidance for the fiscal year looked a little better than our forecasts. I suspect solid earnings plus Apple music-service delays are fueling the stock." To contain music costs, Pandora is limiting users of mobile devices to 40 hours of free listening a month and is backing U.S. legislation to lower royalty payments.
By May, Pandora will be competing directly with conventional stations for the first time on the radio industry's biggest advertising services, gaining better access to local marketers.
The services will provide Pandora's audience ratings alongside to those of stations and let buyers place ads, Kennedy said in an interview this month.