Pandora (P) is the biggest U.S. Internet music service by far, but investors suddenly seem worried about how much bigger it can get.
After a not terribly weak first quarter earnings report on Thursday, shares of Pandora plummeted 15% Friday and have now lost 37% from where they stood at the end of February.
Pandora said its first-quarter revenue increased 69% from a year ago to $194 million and its net loss totaled $29 million, down from a loss of $39 million last year. On an adjusted basis, revenue was about 9% more than analysts expected, and profits per share beat estimates by 4%, according to Factset.
But Pandora lowered its forecast slightly for the second quarter. Perhaps most troubling for investors, however, was Pandora’s audience report. About 75.3 million people were active users at the end of March, unchanged from February and down by almost 1 million users from the end of 2013. In this market, where investors are rapidly revaluing riskier stock plays, that was enough to set off a selling tsunami.
Many similar high-flying growth stocks with little or no profit have also cratered since March rolled through. Shares of Netflix (NFLX) have lost 27% since the end of February, shares of Twitter (TWTR) 24%, LinkedIn (LNKD) 21% and Yelp (YELP) 38%.
Until the past few months, Pandora shares had largely shrugged off new competition from the two mobile platform giants, Apple (AAPL) and Google (GOOGL). Neither company’s foray into streaming music has amounted to much yet. But some reports indicate Apple could overhaul its iTunes Music service and even offer an Android app.
Still, hope springs eternal on Wall Street, where Pandora bulls abound. According to Factset, 20 analysts rate Pandora buy and only two urge a sell. A few are neutral, including Stephen Ju at Credit Suisse, though Pandora would need a 35% gain to hit his $32 price target. He's still emphasizing the positives, such as Pandora’s claim that its customers' 1.7 billion hours of listening time in March represented 9.1% of all radio play.
“Given the opportunity that still lies in front of Pandora to close the gap between its listening-hour share and ad budget share of local radio, we remain optimistic on its runway for growth,” Ju wrote after the earnings.
But most investors seem to be losing faith.