Pandora (P) Shrugs Off Apple (AAPL) Radio Threat

NEW YORK (TheStreet) -- It may have been the quarter Pandora (P) faced potential doom when Apple's (AAPL) iTunes Radio entered the arena, but from the looks of it, you wouldn't know it.

For the third-quarter ended October, the Internet radio provider recorded net income of 6 cents a share, in line with what analysts surveyed by Thomson Reuters had expected. Revenue of $181.6 million was up 50% over the year-ago quarter, beating consensus by $6.8 million. Of total revenue, advertising generated $144.3 million ($104.9 million of which stemmed from mobile), a 36% year-over-year increase, and subscriptions and other incidental sales pulled $37.2 million, up 156% from the year-ago quarter.

"Mobile advertising revenue surpassed the $100 million milestone during the quarter, which drove increased operating leverage," said CEO Brian McAndrews in a press release. "At the same time, Pandora continues to lead the market in mobile innovations, with a complete redesign for the iPad and the debut of the Android tablet app. We plan to continue to aggressively invest in the business as we seek to deliver the best personalized radio service for users."

Sales spending curbed profitability as marketing expenses increased 90% year on year, dwarfing 32.4% gains in content acquisition costs. The company reported an unadjusted net loss of $1.7 million, compared to a net profit of $2.05 million a year ago.

As for reach, the Oakland, Calif-based business held its own in market share over the quarter, with total U.S. share of 8.06%, compared to 6.61% in the third quarter of 2012. A total 70.9 million active users, 20% higher than a year ago, racked up 4.18 billion hours of listening, 17% more than last year.

For the current quarter, forecasts fell short of expectations. In the three months ending January, Pandora expects earnings of 2 cents a share, 2 cents under consensus, on revenue between $185 million and $190 million.

Pre-earnings, expectations were high, with share prices climbing 4.4% to $29.68 during Thursday trading. After the bell, however, the stock reversed its gains, falling 3.3% to $28.70. Year to date, shares are up 223.3%.

TheStreet Ratings team rates Pandora Media Inc as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Pandora Media Inc (P) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share."

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