Pandora Beats the Street, but Shares Slip

Ad revenue up 102% year over year to $66 million

Two quarters into its run as a public company, Internet radio service Pandora is showing that it knows how to build momentum, but questions about its future still weigh on the company’s stock.

In the third quarter, the company posted a narrow profit, reporting net income of $638,000, compared to a loss of $1.7 million in the same quarter last year. Excluding a few items, the company said earnings per share was 2 cents, beating analysts’ expected 1 cent loss.

The company also said revenue grew 99 percent year over year to $75 million, with advertising revenue climbing 102 percent to $66 million. Total listener hours for the quarter increased 104 percent year over year to 2.1 billion, and the number of active users grew 65 percent to 40 million, the company said.

"Our third-quarter results reflect strong progress on all of the key dimensions of our business as we continue to redefine radio,” Joe Kennedy, chairman, president, and CEO of Pandora, said on a call with analysts Tuesday.

But though the company reported revenue above analysts’ estimate of $71.44 million and higher-than-expected earnings per share, Pandora’s outlook for the fourth quarter was lower than expected, resulting in a slight dip in the company’s share price. In after-hours trading, Pandora’s stock fell 3.8 percent to $11.40, below its IPO price of $16.

The company’s expected fourth-quarter revenue of $80 million to $84 million fell within the range anticipated by analysts, according to Yahoo Finance. But its earnings per share guidance of a 4-cent to 2-cent loss was lower than the 2-cent loss predicted by analysts.

During the call with analysts, the company said it would continue to invest aggressively in the next quarter, but said its outlook reflects a desire to be conservative given the larger economic landscape. Striking a positive note, the company said it raised its earnings per share outlook for the following year from a 7-cent to 5-cent loss to a 5-cent to a 2-cent loss.

As competition in digital radio heats up, some wonder if streaming services like Spotify and Radio could slow Pandora’s growth. But just a few minutes into his remarks to analysts, Kennedy emphasized that the company had experienced “no impact” from other digital services.

To access the $13 billion radio advertising market, he said the company is starting build up sales staff in local markets across the country. But he added that Pandora also has its eyes on Internet advertising and mobile advertising. The three markets together will represent an $80 billion advertising opportunity by 2014, he said.

Recognizing that half of all radio listening occurs in cars, Kennedy said Pandora is inking deals with carmakers, such as Toyota and Lincoln, to integrate the service. He also referenced the company’s new political advertising capability, which lets campaigns target listeners by state, county, and congressional district. The full contents Pandora's box, it seems, have yet to be unleashed.