Why Pandora (P) is Sinking in Pre-Market Trading

NEW YORK (TheStreet) -- Online radio broadcaster Pandora (P) issued guidance which saw shares sink in pre-market trading, days after competitor Sirius XM (SIRIbeat expectations in its own earnings release.

In pre-market trading, shares had tumbled 9.9% to $32.27. Shares of Sirius were unchanged.

The company said per-share earnings in 2014 are expected between 13 cents and 17 cents, short of expectations for 19 cents a share, according to analysts polled by Thomson Reuters. For the first quarter ended March, a wider-than-expected loss of between 16 cents and 14 cents a share is forecast, compared to consensus of a 12-cents-a-share loss.

Less-than-expected profitability is a result of rising costs as the company strives to snap up a greater share of the market.

"We remain intensely focused on advancing Pandora's mission to reinvent radio. To fully capture the substantial market opportunity ahead of us, we will continue to aggressively invest in 2014 in sustained audience and engagement growth," wrote CEO Brian McAndrews in a statement.

Though it is one of the most popular online radio services, it has formidable competition from Sirius, Apple's (AAPL) iTunes Radio and Spotify.

In January, Oakland-based Pandora active listeners dropped nearly 4% from December, a result of seasonal fluctuations, but were up 12% from a year earlier. Share of total U.S. radio listening was 8.57%, up from 7.68% in January last year.

Weak guidance overshadowed Pandora's most profitable quarter since its IPO in 2011. The company reported fourth-quarter net income of 11 cents a share on $200.8 million in revenue. Analysts anticipated earnings of 7 cents a share on sales of $201.1 million.

Full-year net income of 6 cents a share exceeded consensus by 4 cents, while revenue of $647.5 million (56% higher than a year earlier) came in as expected.

Must read: Wall Street Must Demand Answers From Pandora ... Now

Must read: Sirius XM (SIRI) Scores With Record Revenue, Subscribers

TheStreet Ratings team rates PANDORA MEDIA INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate PANDORA MEDIA INC (P) a SELL. This is driven by some concerns, 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 and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 182.8% when compared to the same quarter one year ago, falling from $2.05 million to -$1.70 million.
  • PANDORA MEDIA INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PANDORA MEDIA INC reported poor results of -$0.23 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($0.02 versus -$0.23).
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, PANDORA MEDIA INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 46.70% is the gross profit margin for PANDORA MEDIA INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.94% is in-line with the industry average.
  • Net operating cash flow has significantly increased by 569.24% to $4.12 million when compared to the same quarter last year. In addition, PANDORA MEDIA INC has also vastly surpassed the industry average cash flow growth rate of 12.76%.

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