Pandora's stock tumble wipes out $1.4-bn market cap

October 26
3:08 AM 2015

The internet radio services provider Pandora's stock plummeted owing to increased competition in the global market. Pandora shares dropped 35 percent on Wall Street in just one session eroding $1.4billion market capitalization of the company. The emerging competition in internet radio services from global majors such as Apple is impacting the Pandora's performance. Adding to this YouTube has also introduced a subscription plan for music and video.

Apple last week launched new streaming service on 'Apple Music' and it successfully attracted 6.5million paying users. This came as a jolt to Pandora, say market observers. The steep drop in Pandora shares is considered to be market judgment about the future course of action and outlook about the company.

Ironically, YouTube also last week introduced a subscription plan for its music and video content. The launching of new services from Apple and YouTube in the same week has turned out to be a major blow for Pandora. After nose-diving by 35 percent in just one day, Pandora shares closed the last week at $12.39. This is its lowest price during the past two years. 

Pandora has settled a legal issue with music studios that cost the company $90million. After this, the lowering the forecast on revenues for the year further weakened the market sentiment. As a result, the stock fell 27 percent before the opening bell on Friday.

Despite the increased competition, Pandora said that listener hours rose three percent to 5.14billion during the third quarter. Pandora expects $325-330mn revenues and this is lower than the Wall Street expectation of $338mn. 

Pandora reported a net loss of $85.9mn during the third quarter. It works out to be $0.40 per share. Pandora suffered a marginal loss of $2mn during the previous corresponding quarter. FactSet estimated the revenues for the quarter at $313mn, but Pandora could post $311.5mn. 

Total listener hours rose three percent to 5.14bn from 4.99bn. The advertisement is the major source of revenues for Pandora. The advertisement revenues were up 31 percent on year-on-year basis to $254.7mn and subscriptions revenues were $56.9mn, an increase of 26 percent.

The last week's developments created concerns among Pandora investors about the continued battle for getting more number of users. However, Pandora's CEO Brian P McAndrews shrugged off the entry of Apple Music and said that new service had only a 'muted' impact on Pandora's popularity. 

Pandora downgraded financial guidance for the year. Pandora lowered adjusted earnings to $51mn to $56mn down from the previous prediction of $75mn to $85mn. Pandora also forecasts its revenues may drop by two percent to $1.153billion. The lowering of forecast on revenues indicates the weakening capacity of Pandora to make revenues from listeners.

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