Pandora Media, Inc. Is Singing a New Tune in 2014

Growth is slowing at Pandora Media Inc.

Feb 6, 2014 at 10:36AM

Shares of Pandora Media (NYSE:P) opened lower this morning. It wasn't the look back at 2013 that did the leading music streaming website in. Pandora capped off 2013 by producing the most profitable quarter in its history, blowing past analyst expectations. Revenue was roughly in line with expectations, proving yet again that advertisers are starting to pay more for the service's listeners.

However, like a Pandora stream that follows up your favorite song with a David Hasselhoff tune, the market just didn't like what it was hearing about the future. 

Pandora's weak guidance for 2014 and problematic performance metrics for January sent the stock that hit an all-time high last week lower. The online speedster is forecasting an adjusted profit of $0.13 a share to $0.17 a share for all of 2014 on $870 million to $890 million in revenue. Wall Street was targeting earnings of $0.19 a share with $896.3 million on the top line.

The outlook still calls for healthy growth this year, but you can't nearly quadruple in value over the previous 13 months and expect to escape unscathed if you fall short.

It's not just the disappointing forecast that's rattling the market. Pandora is generous enough to provide monthly updates on several key metrics that gauge its popularity, and its performance in January poses a few growth concerns.

Listener hours clocked in at 1.58 million last month. That's a 13% increase over January of last year, but it's flat with its showing in December. Active listeners of 73.4 million -- while a year-over-year increase of 12% -- actually declined form the record 76.2 million sets of ears it attracted in December.

Making sequential comparisons often requires a sensitivity to seasonality trends, and that does factor in to the month-to-month volatility here. A year earlier we also saw flat listener hours and a dip in active listeners between December and January, even though usage actually spiked dramatically sequentially the year before that.

At the end of the day, Pandora's share of the U.S. radio listening -- a metric that naturally takes seasonality into account -- did slip from 8.6% in December to 8.57% in January. It's not good when you're not growing as fast as the radio market that consists largely of old-school terrestrial radio. 

The arrival of Apple's iTunes Radio in September has led to greater scrutiny of Pandora's monthly metrics, and that vigilance was heightened when Pandora posted a sequential decline in active listeners a month later. However, Pandora's held up well since that initial hiccup. It has largely survived Apple's challenge. That may change given the sequential slip in users and Pandora's soft outlook, but bulls aren't necessarily out of luck here.

Pandora is no longer merely a story about usage growth. The real driver here has been its ability to milk more money out of its content by getting advertisers to pay more and encouraging more of its users to shell out money to become premium subscribers. That's clear when one considers that usage only rose 16% during the final three months of 2013, but ad revenue and subscription revenue soared 39% and 132%, respectively. The end result is a 52% spike in revenue while only serving up 16% more content.

Pandora's uninspiring guidance warrants today's dip after a spectacular run since the start of last year, but it's nothing to be alarmed about as long as it can make up slowing usage trend through improving monetization.

Check out six more growth stocks that are pumping up the volume
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. It recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers