Image source: The Motley Fool.

Pandora Media (P) released third-quarter 2016 results Tuesday after the market close, and shares of the online music streaming platform declined more than 3% Wednesday as a result. But while those results once again came in below expectations, Pandora is still happy with where it stands in this year of investment. Let's take a closer look, then, at what Pandora achieved in its latest quarter.

Pandora Media's headline numbers

Quarterly consolidated revenue increased 13% year over year, to $343 million. That total consisted of 7% growth in advertising revenue, to $273.7 million, a 1% increase in subscription and other revenue, to $56.1 million, and 25% growth in ticketing service revenue -- this from Pandora's acquisition of TicketFly last year -- to $22.1 million. Similar to last quarter, Pandora CFO Michael Herring also confirmed during the subsequent conference call that local advertising represented around 28% of total sales and "continues to be a steady engine of revenue for Pandora."

On the bottom line, based on generally accepted accounting principles (GAAP), that translated to a quarterly net loss of $61.5 million, narrowed from a GAAP net loss of $85.9 million in last year's third quarter. On an adjusted (non-GAAP) basis, which excludes items such as stock-based compensation and acquisition expenses, Pandora's net loss was $16.1 million, or $0.07 per share. Meanwhile, adjusted earnings before interest, taxes, depreciation and amortization came in at a loss of $6.6 million.

By comparison, Pandora's guidance called for higher revenue of $360 million to $370 million, with expected adjusted EBITDA ranging from a loss of $5 million to a profit of $5 million.

During the subsequent call, Herring elaborated that last quarter's softness in national advertising carried through into the third quarter, primarily in the entertainment and telecommunications verticals.

"We expect that to continue," added Herring. "We don't see any big changes of that in the [fourth quarter], and that's reflected in our guidance for Q4."

Listening more closely

But before we get there, let's turn down the volume and dig deeper into some of the other important metrics driving Pandora's results.

Keeping in mind listeners that tend to ebb and flow each quarter given steep competition of late, Pandora's number of active listeners fell slightly on a year-over-year basis, to 77.9 million. At the same time, total listener hours increased 5% year over year, to 5.4 billion, showing that those listeners are more engaged and active within Pandora's platform relative to the same year-ago period. Meanwhile, revenue per 1,000 listener hours (RPMs) increased around 1%, to $61.09.

But perhaps most importantly, Pandora continued to launch new products and strike new partnerships under its ambitious effort to invest in building new revenue streams. Last month, for example, that included a revamped version of Pandora's $4.99-per-month subscription service called Pandora Plus, featuring more skips and replays, a new predictive offline mode to compensate for lost signals, and related enhancements to Pandora's ad-supported platform.

Just before Pandora Plus, Pandora also struck "landmark" direct-licensing agreements with more than 30 independent labels and music distributors during the quarter, paving the way for enhanced subscription services including a $9.99-per-month on-demand offering to be launched in the coming months.

Those new products come with a cost, so Pandora also borrowed $90 million under its existing credit facility this quarter to "enhance [its] working capital position." In addition, because many of those direct-licensing agreements have minimum guarantee payments, with some paid in advance, prepaid content acquisition costs rose to $102.6 million for the quarter, up from just $2.1 million in last year's third quarter. 

On guidance

Returning to guidance for the current quarter, Pandora expects revenue of $362 million to $374 million, and an adjusted EBITDA loss ranging from $51 million to $39 million.

Pandora also reduced its revenue guidance or the full year, calling for 2016 revenue of $1.354 billion to $1.366 billion, down from $1.385 billion to $1.405 billion previously. That should translate to a full-year 2016 adjusted EBITDA loss in the range of $140 million to $128 million, down from previous guidance for an adjusted EBITDA loss of $70 million to $50 million -- albeit primarily given the earlier-than-expected changes in content costs resulting from the new licensing deals.

But this shortfall wasn't entirely unexpected, as it's no mystery that Pandora's new products or licensing deals would negatively affect its profitability in the near term. And if anything, it's evident that Pandora is striving to put itself in as enviable a position as possible to capitalize on its transformation to be a more diversified music streaming, ticket-buying solution.

Perhaps that's why the market's negative reaction to Pandora's results wasn't more severe today. But in the end, even after today's underwhelming results, I think Pandora is right to express optimism for its future.