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Why Pandora Missed a Beat as SiriusXM Surged

In contrast, Pandora shares fell nearly 20% in after-hours trading on Monday, after the company beat third quarter earnings estimates, but cut its full year guidance sharply as a result of content costs and ad market headwinds.

The Oakland, California company said it's 2012 loss will be between 9 cents to 12 cents a share, nearly doubling previous estimates detailed in August. Pandora also cut its sales outlook to $422 million to $425 million from as much as $432 million, forecasted earlier in the year.

While subscribers grew 85% in the quarter and mobile ad sales rose over 100, those figures weren't enough to offset content costs. Royalties paid to music labels now represent 55% of the company's revenue and continue to hinder Pandora's overall profitability. Royalty costs and uncertain ad revenue create an uncertain financial piscture for the company headed into 2013.

Yesterday's earnings didn't help. BTIG analyst Richard Greenfield took to Twitter to complain that Pandora wouldn't take analyst questions on its conference call Monday evening. "Pandora management chooses not to take our questions on their quarterly earnings call," wrote Greenfield on Twitter. He characterized the lack of a Q&A as 'frustrating."

"[Despite] the incrementally positive underlying fundamentals showing mobile revenue growth in excess of content cost growth, [Pandora] shares are likely range bound until the new year," wrote Credit Suisse analyst Stephen Ju, of Pandora's third quarter and lowered guidance.

Pandora did show some positives in third quarter earnings, including strong usage growth in November, continued acceleration in mobile ad revenue growth as desktop usage declined, according to Bank of America Merrill Lynch analyst Nat Schindler, who maintained a 'Buy' rating and $16 a share price target on the company in a note sent to clients.

As SiriusXM and Pandora head into 2013 with diverging earnings and stock performance, its time for investors to realize that both services aren't direct competitors.

A rising prospective paid user base for SiriusXM may translate to earnings, if subscribers continue to see reason to pay for non-music services. Meanwhile, Pandora may need to find new revenue streams to offset content costs.

For more on SiriusXM shares, see why the company's stock surge may not end in 2012.

-- Written by Antoine Gara in New York
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