Pandora's quarter: What Wall Street is saying

Shares initially rise, but then go lower following third-quarter results that were better than expected. Guidance fell short of expectations.

By TheStreet.com Staff Nov 22, 2013 3:34PM

Caption: A music lover uses the Pandora app to listen to internet radio. Credit: © Richard Levine/AlamyBy Chris CiacciaTheStreet.com logo

NEW YORK (TheStreet) -- Pandora Media (P) shares rose in early trading Friday but then fell after the Internet music giant reported revenue that beat Wall Street estimates for the third quarter but guidance missed expectations.


The company earned 6 cents a share on $181.6 million in revenue, up 50% year over year. Analysts surveyed by Thomson Reuters were expecting profit of 6 cents a share on $174.8 million in revenue. Of the $181.6 million in sales, advertising revenue accounted for $144.3 million, of which $104.9 million came from mobile. 

Subscriptions and other revenue totaled $37.2 million, up 156% from the year-ago quarter.

For the upcoming fourth quarter, Pandora said it expects to earn 2 cents a share, with revenue between $185 million and $190 million. Analysts were expecting a bit more, with Pandora expected to earn 4 cents per share on revenue of $187.6 million. 

Despite the drop in the share price, analysts were largely positive on the quarter, noting the strength in mobile advertising and users, particularly in the face of Apple (AAPL) iTunes Radio, which launched during the quarter.

Even with the slight gain in shares on Friday, Pandora was still one of the year's top-performing stocks. Shares are up 223.1% year to date, blowing past the 25.9% gain seen in the S&P 500.


Pandora had 70.9 million active users at the end of the quarter, up 20% from a year earlier.

Credit Suisse analyst Stephen Ju (Neutral, $27 PT)

"Ad revenue at $144.3mm was in line with our estimate but exhibited a better mix versus our expectation for mobile as its RPM grew 47% YOY, to reach $104.9mm in mobile ad revenue. Desktop RPM was essentially flat sequentially and YOY. The expected Arbitron accreditation announced on the call should remove a significant friction point against greater ad dollar deployment on Pandora and help close the gap between dollar and listener hour share in the more near-to-medium term. Longer term, we expect advertisers to make better use of the more granular targeting and measurement capabilities inherent with Pandora inventory, which should continue to propel RPMs higher."

Wedbush analyst Michael Pachter (Neutral, $33 PT)

"Our price target is based on a $100 value per active user, reflecting Pandora's accelerated growth from its shift to local ads and higher ad frequency. The company is finally
beginning to show operating leverage through stronger control of content costs and SG&A spending, and is positioned to deliver outsized earnings in the near future."

Wells Fargo analyst Peter Stabler (Outperform, $35 - $37 PT)

"We remain convinced that Pandora's local market audience scale is driving the audio ad ramp. (Longer term, we're confident pricing power will emerge by virtue of superior targeting). Personally, we believe Triton Digital data is superior to current Arbitron measurement. But we know that some buyers still balk at the idea of separate data sources. Thus
we're encouraged by the closure of the Nielsen/Arbitron deal and expect measurement of Pandora by Nielsen Audio to occur sometime during 2014. While we don't expect this to bring any sort of inflection point to ad revenue growth, we believe it should finally quell hold-out data critics and dampen negative selling tactics of terrestrial radio competitors."

JPMorgan analyst Doug Anmuth (Overweight, $35 PT)

"Pandora posted solid 3QFY14 results driven by continued strong increases in mobile monetization and 680bps of Y/Y leverage in content acquisition costs. We continue to believe Pandora is approaching an inflection point in monetization driven by its 8% share of radio time, buy-side platform integration, and expanding salesforce."

Shares of Pandora were down about 2% Friday afternoon to $29.07.


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