Pandora Media Declines After Forecasting Wider 2012 Loss

Pandora Media Falls After Forecasting Wider Loss for Full Year
Pandora Media Inc. fell 21 percent to $7.42 in extended trading. Photographer: Andrew Harrer/Bloomberg

Pandora Media Inc., the Internet radio company, tumbled the most in more than a month after saying advertiser caution about spending will lead to a wider full-year loss than the company had forecast.

Pandora fell 17 percent to $7.82 at 11:39 a.m. and earlier tumbled 18 percent for the biggest intraday decline since Oct. 25. The Oakland, California-based company’s shares had fallen 5.6 percent this year through yesterday.

Advertisers are wary of making commitments in the new year out of concern over the so-called fiscal cliff negotiations in Washington, Chief Executive Officer Joe Kennedy said in a phone interview. The loss for the fiscal year ending Jan. 31 will be 9 cents to 12 cents a share, the company said in a statement, wider than the loss of 4 cents to 8 cents forecast in August.

“There are concerns about the effect the fiscal cliff will have on growth, and it’s reduced our visibility,” Kennedy said. “When our clients are cautious, we have to be cautious.”

The company lowered its sales forecast to $422 million to $425 million, from as much as $432 million previously.

Advertisers have been growing more cautious over the past couple of months, Kennedy said.

President Barack Obama and Congress are negotiating to avoid the fiscal cliff, pending tax increases and spending cuts that take effect in 2013 if an alternate agreement isn’t reached.

Music royalties, at 55 percent of sales, are Pandora’s largest cost and growing faster than advertising, the principal revenue source.

Content Costs

Pandora is part of a group including Clear Channel Communications Inc. that backs U.S. legislation to unify music royalties paid by Web, cable and satellite services. Rich Tullo, an Albert Fried & Co. analyst, estimates the bill could cut content costs in half.

“Paying royalties for every song played means that greater usage results in higher costs,” John Tinker, an analyst at Maxim Group LLC in New York, wrote in a Dec. 3 report.

The fourth-quarter loss excluding some items will be 6 cents to 9 cents a share, the company said. Sales will be $120 million to $123 million. Analysts had estimated $130.2 million.

Pandora posted third-quarter profit that exceeded analyst’s estimates, on higher advertising and subscriber revenue. Net income rose to $2.05 million, or 1 cent a share, in the quarter ended Oct. 31 from $638,000, or break-even per share, a year earlier, the company said.

Earnings of 5 cents excluding some items beat the 1-cent average estimate of 19 analysts, compiled by Bloomberg. Sales climbed 60 percent to $120 million, exceeding the $117.1 million average of 22 estimates.

Mobile ad sales grew 112 percent to $73.9 million in the quarter, Kennedy said, outpacing the 85 percent gain in mobile listeners.

“Mobile is our core focus,” Kennedy said. “Those lines are crossing.”

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