Please ensure Javascript is enabled for purposes of website accessibility

Investors Press Pause on Pandora After Earnings

By Evan Niu, CFA and Erin Kennedy – Feb 7, 2014 at 7:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Online music streaming service Pandora was yet another tech stock to get crushed after earnings, despite reporting a pretty good quarter. Why did investors walk away?

Shares of online music streaming service Pandora (P) sold off today, after the company reported what looked to be a pretty solid earnings report. Motley Fool tech and telecom bureau chief Evan Niu, longtime Pandora skeptic, notes that there were actually several things from the report to like. One of the biggest key things for investors to note from the report was the company's revenue growth, and how it dramatically outpaced royalty costs, with 57% and 30% increases respectively, something that is essential to Pandora's business. Also, the company's revenue per 1,000 impressions, a common metric for Pandora, is at record levels, with this quarter being the most profitable quarter the company has ever posted.

But the market is forward looking, and the problem here was Pandora's guidance. The company is ramping up spending on its sales force, which is going to impact the company's bottom line this year. Using human salespeople instead of automated sales is inherently less scalable, and may, at first glance, cause concern for the company's growth; but it's also more effective, especially in local markets. Evan discusses where Pandora will be concentrating this year, and what to look for with the company going forward.

Erin Kennedy has no position in any stocks mentioned. Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.