Pandora Narrows Losses, Forecasts Full-Year Profit

Aided by a surge in mobile advertising, Pandora on Thursday posted stronger than expected revenue of $194.3 million its first quarter, up 69% from a year ago. Losses narrowed to $28.9 million, down from $38.7 million a year earlier.

Riding on the crest of a mobile advertising wave, Pandora said revenue from ads shown on smartphones and tablets generated $147 million in the quarter ended March 31. In other words, mobile ads made up nearly 76% of Pandora's revenue. 

In 2013, Pandora claimed a 3.7% share of the U.S. mobile ad market, which totaled $9.69 billion, according to eMarketer, which forecast that U.S. mobile ad spending will increase 83% in 2014 to reach $17.73 billion.

The lion's share of Pandora's listener hours occur on mobile devices, making it one of the most mobile-centric online media companies, according to comScore.

Pandora also said it expects to break even or turn a profit in its second quarter and raised its revenue and profit guidance for the full year.

For its second quarter, Pandora said it expected revenue to be in the range of $213 million to $218 million. Earnings per share, calculated on a non-GAAP basis, is expected to be between break even and 3 cents. For the year, the company expects revenue to be between $880 million and $900 million. That's up from the $870 million to $890 million it had predicted three months ago. Earnings, also on a non-GAAP basis, is expected to be between 14 cents and 18 cents a share, up from prior forecasts of 13 cents to 17 cents.

Pandora continued to nibble away at traditional radio, in March claiming 9.1% of all radio listening in the U.S., up from 8.1% a year earlier. It also reported 75.3 million active listeners for March, up from 69.5 million last year.

Investors nevertheless pushed Pandora's stock down following the earnings announcement, which came after the stock market closed. Pandora's shares, which had gained 3 cents to close at $28.20 prior to the earnings release, fell as much as 8% immediately after the company issued its financials. As of 5:30 p.m. eastern, Pandora's shares were down $1.49, or 5.3%, to $26.71.

Michael Pachter, analyst with Wedbush Securities, said the reaction was primarily due to profit expectations.

"High-value Internet stocks can maintain their value only if investors see a path to delivering profits from their revenue growth," Pachter said. "I like Pandora, recently upgraded, but the level of profitability is apparently too small for many investors to make the leap of faith that they will be wildly profitable someday. At the high end of guidance, they will generate under $40 million of EBITDA [earnings before interest, taxes, depreciation and amortization], while the stock has a market cap of $5.5 billion. That’s over 100 times EBITDA, and investors are uncomfortable paying that much unless they see dramatic growth."