Pandora Guidance Opens the Sins of the World

The end result is that the adjusted earnings data came to $0.11 per share on revenue of $200.4 million, versus Thomson Reuters estimates of $0.08 per share and $201 million in revenue (up over 70%). This is impressive on the surface, but not really good enough considering how high the stock price has gone.

Pandora’s guidance is yet another sin. Pandora is projecting a loss of -$0.14 to -$0.16 per share for the coming quarter, and it sees revenues of $170 million to $176 million. Thomson Reuters had estimates of -$0.12 per share on $171.7 million in revenues. For 2014, Pandora is projecting adjusted earnings in a range of $0.13 to $0.17 per share on revenue of $870 to $890 million. Thomson Reuters had estimates of $0.19 in earnings per share and $896.3 million in revenue.

This is a problem for Pandora. Beating earnings expectations on a mixed to close revenue is not really going to cut it. After all, it traded at 175-times expected 2014 earnings ahead of the report. The closing bell price with the adjusted mid-point of the range puts the valuation up at an even higher 233-times earnings. But lowering guidance, that is going to bring a reality check to investors.

Calendar 2013 total listener hours rose by 23% to 16.7 billion, and it ended the quarter with $450.1 million in cash and investments. The company signaled that it is more interested in investing and growing than it is generating income. It said,

“We remain intensely focused on advancing Pandora’s mission to reinvent radio. To fully capture the substantial market opportunity ahead of us, we will continue to aggressively invest in 2014 in sustained audience and engagement growth as well as activities that further accelerate monetization. As such, our bias will continue to be toward revenue growth and capturing additional market share.”

Pandora closed up $0.03 at $35.83 on Wednesday against a 52-week trading range of $11.13 to $37.95. The after-hours reaction has shares down close to 8% at $33.07 in the first reaction. Pandora is probably lucky the drop is not even worse.