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Pandora Sinks: What Wall Street Thinks

A previous version of this article said Pandora generated $162 billion in revenue for the second quarter. TheStreet regrets this error.

NEW YORK (TheStreet) -- Second-quarter earnings from Pandora (P) actually beat Wall Street's expectations, but shares fell sharply as the company gave guidance and worries about competition continue to creep up.

Oakland, Calif.-based Pandora earned 4 cents a share on a non-GAAP basis, generating $162 million in revenue for the quarter, up 58% year-over-year. That was better than expectations, as analysts polled by Thomson Reuters expected the Internet radio company to earn 2 cents a share on revenue of $156.22 million.

During the quarter, Pandora logged 3.88 billion hours of listening, an 18% hike compared to the same period last year, as the company's share of the radio market grew to 7.08%, up from 6.02% in the prior year's quarter.

However, shares fell in after-hours trading, as the company narrowed its earnings guidance for the full year. It said it could break even or earn up to 5 cents a share, on revenue between $640 million and $655 million. Analysts are looking for a gain of 5 cents a share on $634.08 million.

Following the report, here's what several analysts on Wall Street had to say, with some worrying about the added competition of Apple's (AAPL) iTunes Radio, which is reported to launch in September.

Lazard Capital Markets analyst Barton Crockett (Neutral)

"Our model updates after Pandora's F2Q14 earnings report emphasize the evolving nature of the model -- usage caps coming off, revenue estimates up, earnings estimates down. We note Pandora's argument that Apple's music cost benchmark is favorable, but wonder why Pandora doesn't take it. We agree the revenue opportunity is substantial, but see the September iTunes Radio launch as a big test of the durability of Pandora's appeal."

Credit Suisse analyst Stephen Ju (Neutral, $19 PT)

"Advertising revenue fell shy of our estimate but was consistent with last quarter, as Pandora reported $128.5mm in ad revenue versus our $137mm. That said, Pandora continues to exhibit rapid increases in its mobile ad RPM, as it grew 53% versus 30% in 1QFY14. Desktop RPM also showed modest acceleration as well. Once again subscription revenue was better than expected, which offset the shortfall in advertising revenue. Even as we raise our RPM estimates for both mobile and desktop, Pandora also announced its intent to step up its investment activities in both sales and marketing and product development, which does compress our EPS growth estimates near term, but as we assume the company grows into the elevated level of OpEx, our longer-term estimates do march higher."

Canaccord Genuity analyst Michael Graham (Buy, $25 PT)

"Pandora's Q2 results were strong and we believe the company is in the early stages of ramping monetization efforts. Enabled by a combination of heaver mix towards subscription hours and higher ad loads, mobile ad RPM of ~$34 was very robust. Pandora is removing its 40-hour mobile listening cap, which may dampen gross margin and limit paid subscriber additions in the near term. In addition, with the stock up ~32% since the Q1 earnings call, we would not be surprised to see some volatility, but we believe business momentum is strong."

Pandora shares were lower in pre-market trading, off 6.59% to $20.28.

--Written by Chris Ciaccia in New York

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