I'm Not Opening This Pandora's Box

In the last 52 weeks, shares of Pandora Media (P) have risen 69%. After such an increase, is there still a chance for investors tune in?

Last week the Oakland, Calif.-based music streaming company announced better-than-expected fourth-quarter revenue and EBITDA. Specifically, Pandora posted a fourth-quarter loss of $0.13 per share, excluding non-recurring items, $0.11 better than expected. Revenue rose 17%, year to year, to $392.6 million, about $24 million more than the consensus estimate.

Advertising revenue for the quarter advanced 16% to $313 million, benefiting from the election by about $10 million. Subscription revenue was $59.8 million, a 5% increase. Pandora's ticketing service, Ticketfly, produced revenue of $19.4 million, up 20%.

Total listener hours were up 0.4% to 5.38 billion in the fourth quarter. For full-year 2016, listener hours grew 4% to 21.96 billion. The company had 81 million active listeners in the fourth quarter.

Pandora ended the quarter with 4.39 million subscribers, a 12% rise from a year earlier.

The company hopes to move more of its listeners to its premium $9.99 a month on-demand streaming service. This new service, which is similar to Apple Music, Amazon Music and Spotify, promises ad-free streaming, a huge content library and downloads for offline listening. The service will also include personalization features.

On Pandora's conference call, management guided down the first quarter. It now sees revenue between $310 million and $320 million, below the Wall Street consensus of $342 million, and an adjusted EBITDA loss between $70 million and $80 million. Analysts have modeled losses of just $60 million.

Investors have also been concerned about Pandora's cash burn. In January, the company announced it would reduce its workforce by 7%. Over the last year, free cash flow was negative $324 million.

What concerns me is whether Pandora will have to raise money in the face of competition from much larger, better-financed companies. The cost of launching a "me-to" service will be huge and I'm skeptical the company can achieve its 2017 guidance of 6 million-9 million new subscribers.

I would click skip on Pandora.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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