Investors were hitting the mute button on Pandora Media (NYSE:P) today as the stock tumbled 22% after hours on a disappointing earnings report. Here are the key numbers:

  • Revenue grew 33%, to $268 million, short of its own guidance at $273 to $278 million and the analyst consensus at $276 million.
  • Adjusted earnings per share came in at $0.19, meeting expectations.  
  • Guidance for both the first quarter of 2015 and the full year was short of estimates. Management projected $220 to $225 million for Q1, and $1.15 to $1.17 billion for the full year. Wall Street meanwhile saw sales at $244 million for the first quarter and $1.21 billion for the year.

The Street isn't kind to growth stocks that come up short on guidance on the top line, and that's what we're seeing in the sell-off. Still, there were plenty of positive catalysts for Pandora.

Listener hours continued to grow steadily in the quarter, rising 15%, to 5.2 billion, showing that rivals like Spotify and Apple haven't significantly dented its growth. Active listeners were also up 7%, to 81.2 million year over year, showing that the Internet DJ is continuing to grow its audience. Finally, local advertising shot up 90%, to $49.9 million, indicating a new promising revenue stream.

Perhaps most important for the company, content acquisition costs fell during the quarter from 46.5% a year ago to 43%. For a long time, that key expense category had grown faster than revenue; but Pandora seems to have finally gotten control over acquisition costs, which should help drive leverage in the future. 

RPMs, or ad revenue per 1000 listener-supported ad hours, also improved close to 20% in the quarter, to $48.19. Investors had been concerned that mobile listening brings in lower ad rates than computers, which can also feature display ads, but mobile RPMs were up more than 22% in the quarter, outpacing desktop growth.

The sound of silence
With today's drop, Pandora shares are now down more than 60% since their peak above $40 early last year; but much of the cause for that drop may be that shares were simply bid up too high before. Fears about competition from Apple, following its Beats acquisition, and Spotify, also seem to have put pressure on the online radio provider, and investors have worried about slowing listener growth. This is a company in transition, however. It's gone from targeting listener growth to focusing on advertising revenue.

With the huge opportunity in online radio, Pandora is a long-term growth story, and the jump in local advertising revenue is a sign of the a major market ready for the company to tap. On the earnings call, management repeatedly deflected comparisons to Spotify, and chose instead to focus on the $17 billion opportunity in the terrestrial radio ad market. Considering Pandora has a near 10% share of radio market listening hours, it would be bringing in $1.7 billion in revenue if it had an equivalent share of the terrestrial ad market, instead of just $732 million.

That spending seems to be shifting though, and as a digital music provider, Pandora can provide a better return on the investment than its terrestrial competitors, and therefore can charge more. As the Internet DJ finds itself on the dashboard in more cars on the road, both listener hours and ad revenue should grow organically.

Pandora is not without risks, and the upcoming Copyright Royalty Board will certainly weigh on the stock's future; but the long-term growth story remains intact. Today's drop could present a good buying opportunity for investors looking to get a piece as the stock's forward P/E ratio has now fallen to below 30 on an adjusted earnings basis.

Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. 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.