Pandora shares plummet after hours on weak outlook

Pandora's stock price dropped more than 20 percent this evening after the company reported a weak forecast for the current quarter.

Pandora Media, the company behind the Web's largest radio service, saw its share price drop nearly 20 percent in after-hours trading this evening.

Pandora is suffering through a frustrating period. Photographed is Joe Kennedy, Pandora's CEO. Greg Sandoval/CNET

The company's dismal forecast spooked Wall Street, which was already growing skeptical of the company's business model. Pandora shares declined 18 percent, or $1.71, to $7.74. When Pandora went public earlier this year, the company's shares changed hands at more than $16.

Pandora reported net income of just over $2 million, or a penny a share, on sales of $120 million in its fiscal third quarter, which ended Oct. 31. That actually slightly exceeded analyst expectations of one cent a share on $117 million in revenue, according to FactSet.

But investors did not at all like the streaming radio service's glimpse of the future. Pandora said it expects a loss in the fiscal fourth quarter between 6 cents and 9 cents a share, on sales of $120 million to $123 million. For that period, analysts had projected Pandora to earn a penny a share on revenue of $130.2 million.

This is only the latest bad news for the Webcaster. The company appeared badly outmaneuvered on Capitol Hill last week during a Congressional hearing on Web radio royalties. Pandora is pushing hard for the Internet Radio Fairness Act, a bill that would reduce the royalty payments Pandora and other Webcasters must pay to stream music to subscribers. Many members of the subcommittee reviewing the issue were critical of the bill and voiced their support for music artists.

On top of that, there are the persistent rumors that Apple is on the brink of launching a competing Web radio service. Repeated news stories about that so-far hypothetical service have also battered Pandora's stock.

The rumors continue to swirl but multiple music industry sources have told CNET in recent weeks that the deal that Apple has offered for iRadio has left the major record companies -- Sony Music Entertainment, Warner Music Group and Universal Music Group -- cold.

My sources say that, at a minimum, a deal with all the majors is nowhere near to being completed. Even if Apple sweetens its offer or the big labels change their mind tomorrow, these deals take a while to put to bed. Even in the best case scenario, it will still be a while before we see iRadio.

More to come

Corrected at 2:42 p.m. PT with the right financial numbers for the fiscal third quarter.

 

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