Pandora Stock Decimated by 35 Percent in a Day
Investors are abandoning the digital music service in the face of competition from Apple and others.
A tidal wave of bad news sent shares of Pandora Media cascading 35 percent on Friday, wiping out more than a third of the value of the digital music company.
The catalyst for the decline was multifold, beginning Thursday with Pandora's lackluster earnings report and hitting a crescendo on Friday when about a half-dozen analysts downgraded the stock.
The company reported $311.6 million in revenue in the third quarter, which was up 30 percent year-over-year but about $1 million short of Wall Street's expectations. Then it said revenue in the fourth quarter wouldn't be more than $330 million, which is about $22 million less than what analysts had been forecasting.
Pandora said it has about 78 million active users, but analysts were hoping for more, and many fear that the launch in June of Apple Music has not only taken a toll on Pandora, but that the competitive pressure will not let up anytime soon.
CEO Brian McAndrews addressed the concerns during a conference call after Pandora disclosed its third-quarter financials, acknowledging that Apple's estimated $100 million promotional campaign caused Pandora's growth to slow. "We don't expect that to be sustained over time," he added, though his confidence wasn't shared by some on Wall Street.
"We expected a modest impact from the Apple Music launch," said Barton Crockett of FBR & Co., "but it turned out to be more fundamentally challenging than we thought, prompting us to take our price target down by $1 to $10, and to retain our 'underperform' rating."
Pandora shares fell $6.80 on Friday to $12.39, leaving the company with a $2.63 billion market capitalization on Friday, more than $1 billion less than it had the day before. More than 60 million shares traded on Friday, 12 times more than usual.
The company also reported that it lost $86 million in the third quarter, though that wasn't a surprise to most analysts, given rising costs associated with marketing the service and licensing the music.
As to the latter, Pandora said it is paying $90 million to record labels Sony Music, Universal Music, Warner Music, Capitol Records and ABKCO Music & Records to settle a dispute over royalties for pre-1972 recordings. Despite the settlement, Pandora still will not have a license to use such recordings beyond 2016.
Pandora said its quarterly results included a $57.9 million charge due to the pre-1972 settlement, with more such charges to come in the next five quarters.