Why Things Could Get Even Worse for Pandora

So, why is this considered to be living up to expectations? It was just last week that Pandora was named by 24/7 Wall St. as one of eight companies that have seriously wrecked their stories for long-term investors.

The Thursday downgrade talked about Pandora’s monthly usage flattening at a lower point, at a time when it has a hard time managing content costs while expanding revenue. Higher competition from more than a half-dozen competitors was also cited in the downgrade.

So, here is what we cited as to why Pandora has wrecked its long-term investor prospects …

Last week we opined that Pandora had opened up the sins of the world again, but for investors this time. The online music service reported earnings of $0.09 per share and $239.6 million in revenue, against consensus estimates of $0.08 in earnings per share and revenue of $238.50 million. For the 2014 full year, the company gave guidance in the range of $0.19 to $0.21 for earnings per share and $912 million to $917 million in revenue, versus consensus estimates of $0.18 per share in earnings and $911.58 million in revenue. Before the stock fell, Pandora was valued at over 100 times earnings for 2014 and almost 50 times expected 2015 earnings.

Following this news, the stock fell to a new low of $19.35 on October 24, before closing down 13.5% at $20.00 even. This valuation could be indicative of slowing growth and a business model that is at risk and worth the massive premium. Its stock has a consensus analyst price target still up at almost $32, and the new 52-week trading range is $18.51 to $40.44. Considering the price was split in half, investors are not happy, and this could potentially be a resounding burn for them even if the stock recovers from the current lows.

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Pandora shares were down 2.5% at $18.76 in late afternoon trading on Thursday. The only reason this wasn’t worse was that the low of $18.51 on Thursday also marked a 52-week low — down from a high of just over $40. Pandora’s market cap is still close to $3.9 billion, even at these lows.