Pandora Earnings Show Ongoing Risks for High-Flying Valuations

Net income for the third quarter was $20.3 million, compared to the same period in the previous year of $10.2 million. Year over year, total mobile revenue grew 50% to $188 million and local advertising revenue grew 118% to $41.8 million. The share of total U.S. radio listening for Pandora in September was 9.06%, an increase from 7.77% at the same time last year.

The company gave guidance for both the fourth quarter and the 2014 full year. The company expects to have earning in a range of $0.17 to $0.19 per share and between $273 million and $278 million in revenue, against Thomson Reuters consensus estimates of $0.17 in earnings per share and $272.75 million in revenue.

Pandora increased its 2014 full-year guidance to $0.19 to $0.21 in earnings per share and $912 million to 917 million in revenues. The analysts’ consensus estimates for the full year are $0.18 in earnings per share and $911.58 million in revenue.

Pandora announced a direct deal with Merlin this quarter that will provide over 20,000 labels and distributors with greater access to Pandora’s data. According to this deal, Pandora will not have to pay statutory rates set by the Copyright Royalty Board but instead will pay rates negotiated with Merlin.

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

Our business is on-track and operating as planned, with accelerating advertising revenue growth and record RPMs, the result of increased mobile monetization and scale. At the same time we’re excited to have established Pandora AMP, the Artist Marketing Platform, generated from tens of billions of hours of personalized listening. Pandora AMP offers meaningful data and insights to all 125,000-plus artists played on the service, and will help artists with critical decisions such as tour routing, set lists and title tracks.

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Shares of Pandora closed Thursday up 1.81% at $23.12. Following the earnings report, the initial reaction in the after-hours was negative, and shares fell about 4% to $22.24. The stock has a consensus analyst price target of $34.31 and a 52-week range of $19.91 to $40.44. The company has a market cap of over $4 billion.