Shares of Pandora have plummeted in the last two days after the Internet radio company issued a dissapointing forecast for next quarter's earnings. On Wednesday, shares dropped by nearly 18% down to $7.80 a share and as of Thursday afternoon are trading at $7.95 a share.
At the root of the drop were worrying comments made by Pandora executive Joe Kennedy who explained that, given the current economic environment, attracting advertisers is proving to be more challenging than the company initially anticipated for the quarter.
But as things go with the stock market, the gloomy outlook for next year's quarter overshadowed rather respectable earnings results from Pandora's current quarter ending October 21.
In the most recent quarter, Pandora posted a profit of $2.1 million, which translates to about a single penny a share. Last year, during the same quarter, the company posted a profit of $638,000. Revenue was also up 60% to $120 million. As for more good news, Pandora's advertising revenue grew 61% to $106.3 million while subscription revenue clibmed this quarter by 52% to $13.7 million. What's more, the number of active listeners on the Internet radio site increased by 45% to 62.4 million, while the number of hours spent listening to Pandora radio skyrocketed 67% to 3.56 billion hours in total.
So, all in all, not too shabby for Pandora, but you'll note from the stats above that while revenue was climbing, the company did not see a corresponding increase in profits. Part of the reason is that the company is obligated to dole out extremely high royalties to record labels and artists. In the last year alone, royalty payments jumped nearly 75%.
Looking ahead, Pandora told investors it's anticipating a loss of loss of $0.06 to $0.09 per share during the next quarter. Given that analysts were expecting earnings of a penny a share next quarter, it's understandable that shares of Pandora have fallen so dramatically.