For Pandora, costs to get more listeners grow

Reuters News
Posted: Feb 05, 2014 5:27 PM

By Jennifer Saba

(Reuters) - Pandora Media Inc reported higher revenue and profit for the quarter ending in December but said that costs to expand its audience are rising.

The online streaming music company said earnings per share for this year are expected to be between 13 cents and 17 cents, below analysts expectations of 19 cents per share, according to Thomson Reuters I/B/E/S.

Shares of Pandora fell almost 6 percent in after market trade on Wednesday after closing at $35.83.

"It's clearly that they are spending more to acquire customers and sell ads," said Michael Pachter, an analyst with Wedbush Securities. "I think they are intent on growing."

Indeed, Pandora Chief Executive Brian McAndrews said in a statement that the company will continue to "aggressively invest" this year to sustain audience growth. "Our bias will continue to be toward revenue growth and capturing additional market share," he said.

On a call with analysts, he said that the company will increase its marketing, expand Pandora's sales team and manage the cost of licensing music.

Pandora is already one of the world's most popular streaming music service although it has plenty of competitors, including Spotify and Apple's iTunesRadio.

The company said that active listeners in January fell to 73.4 million from 76.2 million in December. Listener hours in January rose 13 percent to 1.5 billion compared to the same period last year.

Pandora CFO Mike Herring told Reuters that Pandora plans to build up its sales force in local markets to go after ad dollars that typically go to radio.

"It's not a time to try and optimize profitability," he said. "We think we have a huge market opportunity in front of us."

Many digital and social media companies like Amazon, for example, choose to ramp up revenue and market share over profits.

For the quarter ending December, Pandora reported that revenue grew 52 percent to $200.4 million on a GAAP basis.

Net income on a GAAP basis rose to $8.9 million or 4 cent per share from $1.6 million or 1 cent per share in the prior year period.

This is the first time that Pandora reported its results on a calendar year. Its former fiscal year ended in January.

(Reporting by Jennifer Saba in New York; Editing by Cynthia Osterman)