Pandora Shares Plummet on Sour Fourth-Quarter Forecast
Pandora Shares Plummet on Sour Fourth-Quarter Forecast

Look for continued, strong listener growth to be the theme when Pandora Media reports its fiscal first quarter earnings today after the end of the trading day. The company's shares are down 30% to $9.98 since first fourth quarter earnings were released March 6.

The company's guidance in its last earnings release called for revenue between $72 million and $75 million. Analysts' consensus estimate for fiscal first-quarter revenue is $74.3 million.

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Listener growth will slow but will be strong and in the high double digits. Listener hours rose 87% to 1.06 billion in April from 566 million in the prior-year period. They rose 88% to 1 billion in March from 567 million a year earlier. Both year-over-year increases show very good growth but were down from the 109% gain experienced in fiscal 2012 and the 99% gain in the fiscal fourth quarter.

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Content acquisition costs, as a percent of revenue, will be stable after rising to 59.2% in the fiscal fourth quarter from 50.2% in the fiscal third quarter and 50.4% in the fiscal second quarter. Company executives explained in the last earnings call that January is a historically a weak month because advertising is relatively light but listener hours are strong. Since Pandora pays a fixed royalty for each stream, content acquisition costs rise linearly as listener hours grow.

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Analysts and investors could get antsy if there's no clear proof its advertising strategy is paying off. Pandora is building its local advertising infrastructure in an effort to capture higher-value advertising. As the company continues to put long-term growth over near-term profits, investors may become less willing to go along and demand more attention on the bottom line.