Why Pandora Media Shares Were Tuned Out
Dec 5th 2012 4:05PM
Updated Dec 5th 2012 4:12PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Internet radio company Pandora Media dove as much as 18% after cautioning that its full-year earnings results would come in worse than it originally forecast.
So what: Pandora Media is now warning that a slowdown in spending by advertisers, primarily due to uncertainties surrounding the fiscal cliff, will push its full-year loss to $0.09 to $0.12 per share versus a previously forecast loss of $0.04 to $0.08 per share. Also, Pandora lowered its full-year revenue forecast to a range of $422 million to $425 million, or roughly 2%-3% from prior estimates. It did, however, report third-quarter results that handily beat Wall Street's estimates, as sales rose 60%, even as music content costs rose considerably faster than advertising revenue grew.
Now what: I, and seemingly every other pundit out there, has been worried about the longevity of Pandora's business for quite some time. Based on ad revenue and extremely susceptible to the ebb-and-flow of the economy, it was ad-based Internet companies that struggled the most during the early 2000s. Pandora is set to face increased competition in streaming radio from Apple, which has been prepping to launch its own service; Google with its cloud-based streaming service (that admittedly the company is still working out the kinks on); and Sirius XM whose satellite business is hitting its stride, is now profitable, and actually has a sustainable recurring revenue model. In addition, Pandora simply doesn't have the capital to negotiate content deals like these bigger players, nor does it have the capability to keep bigger players out of its Internet streaming space. Personally, I feel Pandora could be headed much lower.
The article Why Pandora Media Shares Were Tuned Out originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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