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Pandora Media shares rise on strong 1Q results

NEW YORK (AP) -- Shares of Pandora Media Inc. rose on Friday after the Internet radio company reported better-than-expected first-quarter revenue, helped by more paying subscribers.

The results reported late Thursday sent shares up nearly 6 percent in morning trading on Friday.

THE SPARK: Pandora, which went public in June 2011, said the number of subscribers who pay for ad-free listening more than doubled to exceed 2.5 million.

In addition to better-than-expected revenue, Pandora predicted that it may break even in the current quarter after adjusting for one-time costs, and it predicted annual earnings and revenue that exceeded Wall Street forecasts.

THE BIG PICTURE: The upbeat results were a positive sign for the Internet startup as competition in digital music gets tougher. Google Inc. launched a paid subscription plan called All Access last week, and Apple Inc. is expected to unveil a free radio streaming plan later this year. In February, Pandora capped free listening on mobile devices to 40 hours per month, which helped in two ways: It restrained growing royalty costs caused by its heaviest listeners, and it converted more of them into paying customers. The ad-free Pandora One subscription plan costs $4 a month or $36 a year.

THE ANALYSIS: Results show that Pandora's heaviest users are becoming paying users, reducing Pandora's overall cost burden, said Credit Suisse analyst Stephen Ju.

Still he said he was taking a "wait-and-see" position as the company and kept his "Neutral" rating on the stock as it rolls out new buying programs this summer.

The programs "should reduce friction for greater ad budget deployment on Pandora," he said, as well as investments in its salesforce, which increased 73 percent since the 2012 quarter.

SHARE ACTION: Shares rose $1.01, or 5.9 percent, to $18.17 in morning trading, after earlier reaching a 52-week high of $19.37.