When Pandora Media (NYSE:P) reported third-quarter results late last week, the stock's subsequent 15% plunge initially came as a surprise. The music streaming specialist not only beat analysts' estimates on both revenue and earnings per share, but also provided better than expected fourth-quarter guidance.

The problem, however, was that Pandora's active listener base grew just 5.2% year over year to 76.5 million. For perspective, that's only a slight increase from Pandora's 76.4 million listeners last quarter, and marks the company's third consecutive quarterly deceleration, down from 8% growth in the first quarter and 7.5% growth in the second quarter.

This is perhaps not surprising given today's increasingly competitive market. Take Apple (NASDAQ:AAPL), for example, which unveiled iTunes Radio a little over a year ago, then followed with its $3 billion acquisition of Beats Music and Beats Electronics this past May. Meanwhile, Google (NASDAQ:GOOG)(NASDAQ:GOOGL) has been trying to grow its own musical presence by giving away extended trials of Google Play Music through its popular Chromecast device, and even acquiring Songza a few months ago to bolster its music curation capabilities.

Then again, with the ramped-up efforts of Apple and Big G in mind, optimists might note that it's remarkable that Pandora has grown its listener base at all over the past year.

Pandora to investors: You're doing it wrong
But, according to Pandora management during last week's earnings conference call, investors might be missing the forest for the trees. Here's what Pandora CEO Brian McAndrews had to say:

[I]n our view, monthly active users is not the best measure of the true growth in Pandora's audience, as it does not speak to the success in growing the loyalty of our users. [O]ur active users are increasingly loyal and engaged with overall listening hours growing 25%, and hours per active user per month increasing 18% in the last year. The average Pandora listener now uses Pandora for almost 10 days per month, almost three quarters of a day more than same time a year ago. This growth in loyalty has helped drive strong double-digit growth in active daily users on Pandora, which are now over 25 million.

In short, while monthly active listeners are indeed important, the loyalty of those listeners is a better gauge of the state of Pandora's business.

Another enormous opportunity
That's also not to say McAndrews doesn't think competitors are important. In fact, a few moments earlier, he cited increasing competition as the primary reason "expecting monthly active user growth at historic levels is not realistic." He added:

That said, we continue to believe in the long-term opportunity to grow our audience in excess of 100 million monthly active users in the U.S., as growing smartphone penetration, connected autos and other devices accelerates the transition of the 250 million weekly U.S. radio listeners to Internet radio.

By Pandora's estimates, its share of total U.S. radio listening grew to 9.06% in September, up from 7.77% during the same period of 2013. This transition will be gradual, but even if (or when) well-funded competitors like Apple and Google muscle their way in, Pandora's sticky service is still poised to grab a meaningful chunk of those 250 million U.S. radio listeners as they move away from terrestrial tower-based stations.

In addition, Pandora is doing an admirable job of more effectively monetizing its mobile base; last quarter, mobile advertising RPMs climbed 16% year over year to $40.82. As a result, mobile devices now represent 84% of total listener hours, and generate about 78% of Pandora's total ad revenue.

Foolish takeaway
This doesn't mean investors are entirely wrong to fear the negative effects of rising competition. In fact, it's evident competition is stemming Pandora's success, and you can bet management would love be able to claim that Pandora's monthly active listeners were increasing at a faster clip.

However, I have to agree with the assertion that loyalty is the more important measure for Pandora's long-term success. In the end, if Pandora can continue improving monetization while keeping its faithful (and slowly growing) listener base happy, I see no reason the stock won't reward patient shareholders going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.