NEW YORK ( TheStreet) - Debate continues to rage about whether Internet radio outfit Pandora ( P) can survive. Pandora continues to increase its listener base, yet it is struggling to convince Wall Street it has a viable business. Its customer growth hasn't yielded the kind of bottom line that critics want to see. Unfortunately, its third-quarter results did little to change things. The company logged 60% revenue growth. Likewise, subscription revenue surged 52%, with ad revenue coming in at 61%. Google ( GOOG) and Facebook ( FB) would no doubt kill for such growth rates. It's hard to mock such impressive numbers. What I also found encouraging was that Pandora's active users increased by 47% while listening hours soared 67%. What this means is that despite the growing competition from rivals such as Last.fm and Spotify, Pandora continues to grow where critics said it couldn't. But how long will such growth last? Profitability is trending in the right direction. Pandora reached $2 million in net income during the quarter. The company essentially tripled its bottom line as gross margins and earnings before interest, taxes, depreciation and amortization increased by 1.5 points and 136%, respectively. If the report had ended there, it might have been received positively. The problem was that management followed the results with guidance, and the gloomy outlook spoiled the conference call.
Fiscal Cliff Doesn't Miss a Beat
Pandora's CEO Joe Kennedy said the fiscal cliff essentially will push Pandora out of a plane without a parachute. The debate about the fiscal cliff obviously has created a lot of economic uncertainty, but I just don't buy Kennedy's use of it to explain Pandora's lousy outlook. Kennedy said fourth-quarter revenue is likely to come in between $120 million and $123 million. In essence, the company expects revenue to be flat or grow only 2.5%. The CEO also projects an adjusted loss per share of 6 cents to 9 cents. On average, analysts were forecasting EPS of 1 cent. In other words, because of the fiscal cliff -- which many people expect will be resolved -- Pandora projects that it will do a 180-degree turn from one quarter to the next. I think Pandora's real fear is Apple ( AAPL) and the interest Apple is rumored to have in launching a competing platform. Disappointingly, Kennedy avoided that bit of detail.