Shares of Pandora Media (NYSE: P) plunged more than 26% Wednesday after the Internet music streaming service reported a fourth-quarter loss and projected more losses for the next fiscal year.
Pandora late Tuesday reported a net loss of $8.18 million, or 5 cents a share, for the quarter ended January 31. That's a lot worse than the loss in the year-ago quarter of $1.44 million (though last year's per-share loss of 31 cents was much higher than the most recent quarter because it was before the company's June 2011 IPO, so there were far fewer shares outstanding).
The mounting losses -- and sobering guidance -- outweighed Pandora's 71% increase in Q4 revenue to $81.3 million as shares dropped Wednesday as much as 3.74, or 26.2%, to 10.53.
Analysts had expected an average loss of 2 cents a share in the fourth quarter on revenue of $83 million. Nearly 90% of Pandora's revenue comes from advertising; the rest is primarily from subscription services.
For the current quarter, analysts on average expect a net loss of 2 cents a share on revenue of $87 million. And this is what really is punishing Pandora's shares: The company forecasts a loss of 18 to 21 cents a share on revenue of between $72 million and $75 million.
For the current fiscal year, Pandora's profit guidance was equally disappointing. The company said it expects a loss of 11 cents to 16 cents a share on revenue of $410 million to $420 million. Analysts on average predict a net profit of 1 cent a share on revenue of $418 million.
Pandora's challenge is to survive long enough to ride the coattails of the mobile revolution. As the Wall Street Journal writes:
Pandora executives continued to argue Tuesday that revenue will increase more rapidly over time as the mobile market matures. For now, though, the revenue that Pandora makes from its mobile use has yet to match levels seen on desktop computers. Revenue per 1,000 listener hours on desktops is between $60 and $70, Pandora said, while the same metric for mobile devices remains closer to $20.
The question is whether Pandora's revenue can grow fast enough to offset mounting expenses.
It didn't come close in Q4, as content acquisition costs more than doubled to $48.2 million from $23.9 million a year ago and overall costs jumped 83% to $89.4 million from $48.8 million. How long can that keep up?
Of the several social-media companies to go public last year, Pandora was my favorite. But that's as a consumer. Like many of you, I'm a music lover, and Pandora's song-streaming service, which allows users to create customized online radio stations, is right up my alley.
But as someone who has to objectively assess the business prospects of tech companies, there wasn't much to get enthused about in Pandora's February 2011 S-1 filing, which detailed a history of net losses, debt of $84 million, and the inherent uncertainty of a nascent market (online streaming radio).
That's been reflected in Pandora's stock price since going public at $16 last June. After topping out at $26 amid the IPO hype, shares have mostly been below $16 and often have struggled to stay above $10.
Clearly there still isn't much about Pandora to excite Wall Street. I'm not sure if that's going to change.