Pandora Falls as Listener Growth Slows in Third Quarter

Pandora
Pandora Media Inc., the largest Internet radio service, said user growth slowed to 5.2 percent in the third quarter, results that disappointed investors. Photographer: Andrew Harrer/Bloomberg

Pandora Media Inc. declined the most in six months after the largest Internet radio service reported user growth slowed in the third quarter.

Active listeners for the Oakland, California-based company increased 5.2 percent to 76.5 million, a pace far slower than a year earlier, when Pandora reported a 25 percent rise. Users have been flat since June, when Pandora reported 76.4 million.

Pandora’s shares fell 13 percent, the biggest drop since April 25. Listener metrics are a focus for investors because the company is under assault by deep-pocketed rivals from Apple Inc. to Google Inc.

“Sluggish active user growth suggests that services such as iTunes radio and Spotify are hurting Pandora’s ability to attract new listeners,” Michael Pachter, an analyst with Wedbush Securities, wrote in a research note.

Pandora fell $3.12 to $20 at the close in New York, the lowest price in more than a year. Through today, the shares are down 25 percent in 2014.

The company, which started a branding campaign in September, reported revenue and profit that beat analysts’ estimates. Its forecast for fourth-quarter results exceeds analysts’ projections.

Pandora is focused on converting usage into revenue, Chief Financial Officer Mike Herring said in an interview.

“We needed to get monetization in place first before looking to grow listeners,” Herring said. “We’re relatively new to this marketing, customer-acquisition world, and we do have ambitions to grow users significantly in the U.S.”

Listener Hours

Total listener hours increased 25 percent to 4.99 billion from a year earlier, though they fell slightly from the second quarter’s 5.04 billion hours.

The results weren’t sufficient given Pandora’s valuation relative to earnings, Scott Kessler, an analyst with S&P Capital IQ Inc., said in an interview.

“When you have a stock trading at this kind of multiple, folks are expecting the company will significantly exceed estimates -- not slightly beat forecasts,” Kessler said.

Sales increased 42 percent to $239.6 million in the third quarter, the company said in a statement yesterday. That beat analysts’ average estimate of $238.5 million. Mobile devices, where 84 percent of listening occurs, now contribute 78 percent of all revenue.

Profit, excluding some items, was 9 cents a share, versus an estimate for 8 cents.

“While the financial results and guidance were solid, we expect user growth issues and content-cost escalation risk to remain on the front burner and weigh on the stock,” Brian Nowak, an analyst with Susquehanna Financial Group LLLP, wrote in a note. He downgraded the stock to neutral from positive.

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