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Pandora reports Q1 loss, guidance hits sour note again

The Internet's biggest radio service reported a narrower-than-predicted loss in the first quarter, but guidance -- damped by investments in its advertising abilities -- stoked investors to sell.

The NYSE when Pandora went public. Getty Images

Pandora Media, the operator of the Web's top radio service, Thursday reported a narrower-than-expected loss in the first quarter, but shares still plunged as the company's outlook for the current quarter again disappointed.

Shares fell $2.19, or 7.8 percent, to $26.01 in after-hours trading.

It follows Pandora's last report of its biggest quarterly profit since going public in 2011, with the swing to a loss reflecting seasonal slowness and investments to turbocharge its advertising capabilities. With the share price doubling in the last year, investors have generally been patient with Pandora's spending, looking forward to the payoff from a bigger sales force and technology investments to improve the value of the ads Pandora broadcasts. Investors have been less patient with indications that growth in listener hours is slowing, as Chief Executive Officer Brian McAndrews said at a conference in March.

Listener-hour growth was 12 percent in the latest period. Comparisons to other periods are imperfect: Fourth-quarter growth in listener hours was 16 percent, but seasonality can skew the metric. And the growth was 35 percent in the year-earlier quarter, but Pandora has shifted the timing of its quarterly calendar, so the dates of the quarters don't line up.

Even without an apples-to-apples comparison, the trend is clear: The growth isn't what it used to be.

Chief Financial Officer Mike Herring said the law of large numbers -- that it's simply harder to have big growth numbers when your user numbers have grown big themselves -- explains the cooling momentum.

"We had all-time record hours in the first quarter. Listeners are growing; we're at a large number here," he said in an interview with CNET. "Those listeners are listening more than ever before." The number of active listeners increased 8 percent to 75.3 million.

Herring dismissed the idea that competition in digital streaming music was having any effect. "We really don't see the competition affecting our numbers," he said. "Pandora is the only one who has been able to effect the numbers over time."

Competition in intensifying in Pandora's universe. The company continues to lead the market, but giants like Apple and Google added new services like iTunes Radio and All Access last year. Subscription heavyweights like Spotify and upstarts like Beats' continue to gain users, and Google is said to be rolling out another subscription service through YouTube.

Pandora's guidance for the second quarter ranged from breakeven to a profit of 3 cents on revenue of $213 million to $218 million. Analysts were expecting a profit of 5 cents a share on $219 million in revenue. However, for the full year, Pandora raised its guidance thanks to beating predictions in the first part of the year.

In the latest three-month period, Pandora posted a loss of $28.9 million, or a 14 cents a share, compared with $38.7 million, or a 22 cents a share, a year earlier. Stripping out unusual items, its per-share loss narrowed to 13 cents from 18 cents. Revenue jumped 69 percent to $194.3 million, while revenue excluding unusual items rose to $180.1 million.

In February, the company projected a first-quarter loss of 14 cents to 16 cents a share on revenue of $170 million to $176 million.

Update, 1:48 p.m. PT: With executive interview, details of listener growth.

Correction, 2:34 p.m. PT: The original article misstated Pandora's bottom-line guidance. Pandora expects it to range from breakeven to a 3 cent profit.