Why Pandora Shares Popped and Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Internet radio company Pandora Media (NYSE: P  ) climbed as high as 13% today after its quarterly results and outlook topped Wall Street expectations.

So what: Pandora's first-quarter results -- revenue soared 55% on a 35% jump in active users -- and full-year outlook initially seemed to excite investors, but a steady pullback throughout the day suggests that the opening pop was simply a short squeeze of sorts. While Pandora's monetization prospects are certainly getting better, they might not be improving as fast as the stock's seemingly lofty valuation is discounting.

Now what: Management now sees full-year 2014 adjusted EPS of between a $0.02 loss and a profit of $0.08, vs. Wall Street's view of a $0.01 profit. "We see tremendous opportunity to grow all of the key dimensions of our business this year," said Chairman and CEO Joseph Kennedy. "We remain excited about our future and believe that we have just scratched the surface of our potential." Of course, when you couple the uncertainty that still surrounds Pandora's business model with the stock's red-hot momentum of late, I'd wait for a much bigger pullback before buying into that optimism.  

Pandora has won millions of devotees among music fans but few supporters on Wall Street. The online jukebox seems to be redefining the way we consume music, a transformation that's only likely to grow. But high royalty rates and competition from all corners threatens to silence the company. Can Pandora translate success with its listeners into a prosperous business model that will deliver for investors? Learn about the key opportunities and potential pitfalls facing the upstart radio streamer in The Motley Fool's premium research report. All you have to do is click here now to subscribe to this invaluable investor's resource.

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9/28/2016 4:02 PM
P $14.41 Up +0.27 +1.91%
Pandora Media CAPS Rating: **