NEW YORK (AP) ? Pandora Media Inc. lost nearly a quarter of its value on Wednesday after the online music service reported weaker-than-expected earnings and gave a disappointing forecast, casting a shadow of doubt on its business model.
THE SPARK: Pandora makes money from advertising and from subscribers, who pay to access its music streaming service. The company’s results were slightly worse than analysts’ expectations mainly because of weaker advertising revenue. Its outlook for the current quarter was also disappointing.
The company ended the quarter with 47 million active users, up 62 percent form a year earlier. The amount of time people spent listening to Pandora doubled to 2.7 billion hours. And hours listened per user grew 25 percent, to 19.7 from 15.7 a year earlier.
All this should be good news for Oakland, Calif.-based Pandora. But more users listening to more music also means higher costs for the company. Its content acquisition expenses ? the money it pays for the music its users listen to ? more than doubled to $48.2 million from $23.9 million.
ANALYST COMMENT: Canaccord Genuity analyst Michael Graham called the quarter’s results mixed, “highlighted by impressive gains in users and listener hours” but tempered by hurdles in making money. He thinks the high usage bodes well for Pandora’s future, but in the short term the stock could be tied to the company’s ability to make money
“We continue to believe that Pandora will maintain its leadership position in the attractive Internet radio segment, but the advertising ecosystem and perhaps the competitive landscape need more time to develop,” the analyst wrote in a note to investors.
SHARE ACTION: Shares of the company, which went public last summer, fell 3.41, or 23.9 percent, to close at $10.86 in afternoon trading. That’s a long way from the $20 that the stock priced at on the eve of its initial public offering.