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Pandora Earnings Can’t Calm Fears of New Competitors

Paul Ausick

Pandora Media Inc. (NYSE:P) reported second-quarter fiscal 2014 results after markets closed today. The Internet radio company posted adjusted diluted earnings per share (EPS) of $0.04 on revenues of $162 million, which includes $4.7 million in the company’s subscription return reserve. In the same period a year ago, the company reported adjusted EPS of $0.01 on revenues of $33.5 million. Second-quarter results also compare to the Thomson Reuters consensus estimate for EPS of $0.02 on $156.35 million in revenues.

On a GAAP basis, the company reported a quarterly diluted EPS loss of $0.04. Adjusted earnings excluded $10.5 million in stock-based compensation expense.

For the third quarter, Pandora is guiding revenue non-GAAP revenue at $174 to $179 million and adjusted EPS in a range of $0.03 to $0.05. For the full 2014 fiscal year, Pandora raised its revenue guidance from a range of $615 to $635 million to a new range of $640 to $655 million and adjusted EPS in a range from breakeven to a profit of $0.05. The company lowered the top end of its EPS guidance by $0.03.

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The company’s CEO said:

Strong momentum in our mobile business, with non-GAAP total mobile revenue growing 92% year-over-year to $116 million, clearly demonstrates the leverage in Pandora's business model. To drive future growth, we are accelerating investment in new technologies, channels and capabilities that maximize the value Pandora delivers.

Listener hours totaled 3.88 billion in the quarter up from 3.3 billion in the same period a year ago, but down from 4.18 billion in the first quarter.

Sequentially, quarterly ad revenues rose, from $105 million in the first quarter to $128.5 million. Subscription and other revenue rose as well, from $20.36 million to $28.84 million sequentially as well.

Pandora’s lowered earnings outlook is likely due to expected Internet radio competition from both Apple Inc. (AAPL) and Google Inc. (GOOG). The third quarter EPS outlook is also well below the consensus estimate of $0.08.

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Shares are trading down about 5.2% in the after-hours market, at $20.59 in a 52-week range of $7.08 to $21.98. The consensus target price for the shares was around $21.20 before today’s report.

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