Late Wednesday, Pandora released its earnings results, beating expectations on surging revenue for the fourth quarter and "stub period" of November and December as the company changes its fiscal calendar to January through December.
However, the company said its active users fell in January to 73.4 million from 76.2 million in December. The company said it now sees a loss in the range of 16 cents to 14 cents a share for the first quarter of 2014 vs. analysts' expectations for a loss of 12 cents. Full-year 2014 earnings are now projected at 13 cents to 17 cents a share on revenue between $870 million and $890 million. Analysts forecast full-year earnings of 19 cents a share on revenue of $896.3 million, according to Thomson Reuters.
Shares of Pandora plunged more than 10% from Wednesday's open to close Thursday at $32.23. On Friday, investors with faith in the company or anxious to get into a growing media sector saw a buying opportunity. By midday, shares had regained some of that ground, up 7% on the day to $34.50.
According to Reuters, Pandora Chief Financial Officer Mike Herring said the company intends to build up its sales force in local markets where it will compete for ad dollars with traditional radio. The company said it intends to focus on securing more listeners, building market share and revenue over profits.
Competition in online streaming services has begun to grow more fierce lately with the entry of Apple's (AAPL) iTunes Radio and last month's entry of Beats Music, a spinoff of Beats Electronics. The flashier user experience of Beats builds on the brand recognition of its boutique headphone products and a lineup of celebrity endorsements and partnerships that includes Trent Reznor, founder of Nine Inch Nails, and Beats founder Dr. Dre.
Spotify, a chief competitor to Pandora, offers a subscription service alongside a free ad-driven experience. Beats Music is a pure subscription model. Both are betting that brand loyalty will build paid subscriber numbers and that those will ultimately provide more stable revenue than the free approach. Pandora has eschewed a paid subscription service option.
TheStreet's Rocco Pendola has argued that Pandora and other services like Spotify are not mutually exclusive but complementary for most users. But in light of Pandora's recent results, he noted that the company still has to answer to Wall Street regarding how it plans to leverage its huge trove of user and song data, particularly in light of Twitter's (TWTR) recent agreement to share data with the company 300.
I have argued that the entry of Beats Music will refocus the entire sector's attention on branding and the window dressing of the user experience rather than on the technology.
Pandora's chief difference from its competitors is its heavily detailed, proprietary cataloging system known as the Music Genome Project. That database, coupled with amassed user data, in theory should give the company an advantage in creating a more welcome user experience. However, the consistent growth of Spotify and the market appeal of the stylish Beats Music are challenging that notion, casting doubt on the impact of the MGP as it is perceived by the average end user.
-- Written by Carlton Wilkinson in New York