Pandora Slumps After Forecast Misses Estimates as Costs Increase

Pandora Media Inc. (P), the biggest U.S. online radio service, fell in extended trading yesterday after forecasting results in the current quarter that trailed analysts’ estimates as hiring and content costs rise.

The shares fell 9.9 percent to $32.28 after closing little changed at $35.83 in New York yesterday. Pandora will post a loss, excluding items, of 14 cents to 16 cents a share in the quarter ending in March, the company said in a statement. That compares with the average projection of analysts for a loss of 12 cents.

“People expected a higher number,” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, wrote in an e-mail. “It’s not a bad guide, just a tad below expectations, and the stock was priced for a guide above expectations.” Pachter has a neutral rating on the stock, the equivalent of hold.

Pandora is focusing on closing the gap between its share of radio listening and its percentage of the industry’s advertising revenue. The online service drew more than 8 percent of U.S. listeners in January, while the company has said it gets less than 1.5 percent of radio’s $15 billion in local ad sales.

The first quarter is seasonally the lowest for ad sales, Pandora Chief Financial Officer Michael Herring said in a phone interview. The company also absorbs higher costs in the period as it hires sales staff and engineers and the cost of content rights increases on government-set rates, he said.

Business Reset

Revenue will be $170 million to $176 million in the first quarter, the Oakland, California-based company said. That compares with an average analyst estimate of $172.8 million.

“This is the time when we reset the business and invest for the rest of the year,” Herring said. “We will continue to drive bottom-line profitability.”

Pandora will be profitable starting in the second quarter, he said.

The company reported fourth-quarter results that exceeded estimates. Excluding items, profit was 11 cents a share, beating the 7-cent average estimate. Revenue climbed 52 percent to $200.4 million, surpassing the $196.2 million average projection.

Net income in the quarter was $8.98 million, or 4 cents a share, compared with $1.63 million, or 1 cent, a year earlier.

Increased Competition

Pandora is facing increased competition from rivals including Apple Inc. (AAPL), which introduced iTunes Radio last year. In December, Spotify Ltd. offered a free ad-supported service for mobile devices in the U.S. and other countries. Last month, Beats Electronics LLC, the company behind the popular line of high-end headphones and speakers, introduced Beats Music, the brainchild of record producer Jimmy Iovine and rapper Dr. Dre.

Pandora separately yesterday reported audience listening hours totaled 1.58 billion across all platforms in January, unchanged from the previous month. Active listeners last month dropped to 73.4 million from 76.2 million in December.

“The trend we’ve seen in January looks identical to prior years,” Herring said on a conference call yesterday. “We really don’t see at our scale any measurable impact from competitors out there.”

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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