Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Amazon and Pandora Shares Are Plunging

In a word, earnings. While the Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell more than 160 points as of 11:20 a.m. EDT, the losses in (NASDAQ: AMZN  ) and Pandora Media (NYSE: P  ) were far worse, with both stocks experiencing double-digit declines.

Amazon expects to lose a lot of money
Amazon reported second-quarter earnings Thursday afternoon. Although revenue, at $19.34 billion, was in line with analysts' expectations, earnings per share came in sharply below estimates. During the second quarter, Amazon lost $0.27 per share, worse than the $0.15 loss analysts had been anticipating.

Amazon doesn't expect its earnings to improve, either: Next quarter, Amazon expects to lose between $410 million and $810 million. Before the report, Wall Street had been anticipating a loss, but a slight one -- just $10 million.

According to Amazon, much of that loss will be a byproduct of investments in the company itself. Amazon's massive cloud infrastructure, Amazon Web Services, has experienced rapid growth, and Amazon plans to invest heavily to remain dominant in the cloud computing space. Amazon is also looking to invest in original programming for Amazon Prime Video; higher-quality content could yield lucrative Prime subscriptions.

Value investors have often criticized the "free pass" that Wall Street gives the company. Although Amazon has not been profitable for much of its history, investors have continued to prop up its stock price, with the rapid growth the company has generated offsetting the desire for short-term profitability. That may be changing. With shares down more than 11% today, investors may finally be looking for Amazon to generate real profits. 

Source: Wikimedia Commons

Pandora's key metrics are declining
Pandora's decline was even more grim, with shares of the Internet radio giant tumbling over 13% early on Friday. Unlike Amazon, Pandora actually exceeded analysts estimates for revenue and earnings per share ($0.04 on $218.9 million), but investors were disappointed by its guidance and listener metrics.

Next quarter, Pandora expects to earn between $0.05 and $0.08 per share; prior to the report, analysts had been expecting around $0.08. At the same time, Pandora's listener base doesn't appear to be growing as fast as investors had hoped: In June, Pandora's total users slipped to 76.4 million, down from 77 million in May. Likewise, listener hours also declined, dropping to 1.61 billion from 1.73 billion.

Pandora's listener base may finally be facing pressure from its many competitors. Although Pandora dominates online radio, it faces a high degree of competition, including premium subscription-based music services. One such service is provided by Amazon: Amazon Prime members get access to a catalog over 1 million songs they can stream for free, and Amazon has been working to improve the service.

For much of its history as a publicly traded company, Pandora has not been profitable. Investors, looking for rapid growth in a growing space, have been willing to finance Pandora's expansion. If Pandora's listener base is declining, investors may be unwilling to give the company such a lofty valuation. 

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3044646, ~/Articles/ArticleHandler.aspx, 8/29/2015 9:45:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:55 PM
^DJI $16643.01 Down -11.76 -0.07%
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***
P $18.10 Up +0.61 +3.49%
Pandora Media CAPS Rating: *