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Pandora stock drops 19% on rising loss, falling revenue estimate

March 6, 2012 |  3:12 pm

Tim Westergren

Investors slammed Pandora Media Inc. and shares dropped 19% Tuesday after the Oakland online radio company reported a higher-than-expected loss and projected that its current quarter revenue would decline.

Pandora's shares plunged Tuesday, retreating as much as $2.73 to $11.54 in after-hours trading following the company's announcement of its financial performance. It had closed earlier at $14.27, down 39 cents.

Although its fourth-quarter revenue grew 71% to $81.3 million from $47.6 million a year earlier, Pandora's losses widened to $8.2 million, from a $1.4 million loss in the year-earlier period. Pandora also projected that its sales in the current first quarter would be between $72 million and $75 million, dropping by as much as 11% from the previous quarter.

Pandora receives close to 90% of its revenue from advertising, with the remainder coming from subscribers who pay $36 a year for the ad-free premium service.

"Everyone is asking: Why is revenue so low? Why are they losing so much money?" said Michael Pachter, a media analyst with Wedbush Securities. "The answer is that they weren’t focused on selling ads."

Instead, Pandora concentrated its energies persuading car manufacturers to build its Internet music streaming service technologies directly into the dashboards of new cars, Pachter said.

Believing that the way to grow is to capture listeners while they are in their cars, Pandora has worked closely with companies such as Ford, Toyota, Mercedes-Benz and others to design its service into new vehicles. But car manufacturing cycles take years, and Pandora's efforts today may not bear fruit quickly enough for impatient investors on Wall Street.

The stock debuted on June 15 at $16 a share, but sank to $13.26 the following day.


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Photo: Pandora co-founder Tim Westergren. Credit: Ryan Anson / Bloomberg  

-- Alex Pham