Pandora Releases Sins of the Earnings World

Pandora Media Inc. (NYSE: P) reported its fourth-quarter results on Thursday afternoon as $0.18 in earnings per share (EPS) and $268 million in revenue. This compares with Thomson Reuters consensus estimates of $0.19 in EPS and $276.53 million in revenue. The same period from the previous year had $0.11 in EPS and $200.79 million in revenue.

Pandora gave its outlook for the first quarter of 2015 as revenues in the range of $220 million to $225 million and adjusted EBITDA in the range of -$35 million to -$30 million. There are consensus estimates of -0.05$ in EPS and $243.58 million in revenue.

The company ended the fourth quarter with $458.8 million in cash and investments, compared to $437.3 million at the end of the prior quarter.

Total listener hours grew 15% to 5.20 billion in the fourth quarter, versus 4.54 billion for the same period in the previous year. There were 81.5 million active listeners at the end of the fourth quarter, an increase of 7% from 76.2 million in the fourth quarter of the previous year.

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Brian McAndrews, chairman, president and CEO of Pandora, said:

We end 2014 in a very good position, with stronger relationships across the music community, record monetization metrics and highly engaged users. We’re looking forward to an exciting and productive 2015. We have spent the past two years building our monetization capabilities and infrastructure to a point where we are driving healthy gross margins and are cash flow positive. 2015 will be a year in which we optimize Pandora’s potential for long-term growth. We enter the year with energy and focus on what comes next –further migrating radio budgets from terrestrial to digital, defining the future of mobile marketing and advancing Pandora’s leading role in the future of the music industry.

In February only three analysts have made calls for Pandora ahead of earnings:

  • B. Riley reiterated a Buy rating with a $38 price target.
  • J.P. Morgan maintained an Overweight rating but lowered its price target to $34 from $35.
  • RBC Capital Reiterated an Outperform rating with a price target of $35.

Pandora Shares closed Thursday down 0.6% at $18.41. Following the release of the earnings report, shares were down a whopping 22% at $14.28 in after-hours trading. The stock has a consensus analyst price target of $28.27 and a 52-week trading range of $15.26 to $40.44.

As a reminder, Pandora was valued at the close at 92 times expected trailing earnings per share, and it was valued at about 37 times earnings expectations for 2015. High valuations and weak guidance just don’t usually mix too well. One might wonder if shareholders will ever get used to disappointing earnings reports. After all, its stock seems to drop over and over when it reports earnings.

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