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Pandora Reveals Fourth-Quarter Mess

Stocks in this article: PSIRI

NEW YORK ( TheStreet) - Analysts that expressed concern about Pandora's (P) earnings quality appear to be right after the Internet radio company turned in a wider than expected loss in its fiscal fourth quarter and gave weak guidance.

Pandora, which competes in the paid radio market along with Sirius XM (SIRI) and Spotify, reported a loss of 3 cents per share on revenue of $81.3 million for the three months ended in January. Analysts polled by Thomson Reuters were looking for a loss of 2 cents a share on revenue of $83.1 million in the quarter.

Several analysts expressed concern ahead of the report that as Pandora's number of subscribers and listening hours increased, this would weigh on content acquisition costs, potentially hurting earnings. Judging by the fourth-quarter results, they appear to be right. Pandora said it saw 99% year-over-year growth in subscriber listening hours.

The stock was hammered in extended trades. Shares were last quoted at $12.25, down 14%, on volume of 1.85 million, according to Nasdaq.com.

Chairman & CEO Joe Kennedy was positive on the quarter though, saying it sets Pandora up to realize the potential of the market.

"The fourth quarter was a strong finish to fiscal 2012, which was highlighted by record revenue, radio market share, listening hours and active users," Kennedy said in the press release. "Reflecting on our first fiscal year as a public company, we have many accomplishments to be proud of and much to look forward to in the year ahead. Pandora continues to rapidly disrupt the radio industry and has only just begun to realize the potential of our $37 billion U.S. market opportunity."

Pandora's first-quarter guidance and full year revenue guidance were weaker-than-expected as well. The company sees revenue of $72 million to $75 million for the first quarter and $410 million to $420 million for the fiscal year ending in January 2013. Analysts had been expecting first-quarter revenue of approximately $86 million.

Pandora does not directly compete with Sirius, as Pandora offers a free version supported by advertising, while Sirius is strictly a subscription service.

Sirius offers a full array of entertainment, not just music. Currently, Pandora only offers music, but many analysts expect the company to eventually expand its offerings.

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