The online radio company warns investors to expect losses in the short term as the rapid growth of its early days starts to slow.
Pandora has ridden a tide of growth to become the Internet's top radio service, but a filing to prospective investors Monday warned that the heady expansion of its salad days may not continue.
Only days before the launch of Apple's iTunes Radio in the US, Pandora said in a filing to the Securities and Exchange Commission that the "rapid growth in both listener hours and advertising revenue" it has experienced is something it doesn't "expect to be able to sustain" in the future. It said it expected to continue to post annual losses in the near term.
The company reigns over the Internet radio market, but it faces an uncertain future, installing a new chief executive with a track record in advertising just as behemoth Apple prepares to roll out its Web radio product.
The disclosures came in a filing outlining Pandora's plans to sell 10 million shares of its stock, while its biggest investor shareholder -- Crosslink Capital Inc. -- would be selling an additional 4 million it holds. Pandora didn't specify its plans for the infusion of funds from the new shares, other than that it would use the money for general corporate purposes. The warnings about growth came in a section of the filing where a company must outline possible risks of investing in its stock. It is a section that firms typically treat conservatively so they don't expose themselves to allegations of misleading investors.
Pandora's shares were off 4.1 percent at $23 each in after-hours trading on the news. The prospect of a big number of new shares diluting the value of existing ones, as well as the gloomy growth disclosures, both weighed on the stock. The company's number of shares outstanding will increase a little more than 9 percent, making each share slightly less valuable.
Pandora, with more than 200 million registered users and 71.2 million of whom were regular listeners at the end of last month, is the biggest Internet radio provider by far. Clear Channel's iHeartRadio surpassed 30 million registered users in May. Spotify -- the on-demand music-streaming service that introduced a radio product in 2011 -- has more than 24 million active users, by comparison.
But even at the top of the pack, Pandora only represents about 7 percent of US radio listening and it faces the prospect of a major new competitor in iTunes Radio.
Pandora spokespeople have said the company is excited about the introduction of iTunes Radio, as it will speed the shift of terrestrial radio listening to digital, not necessarily Pandora users shifting to iTunes Radio.
Yet Pandora's growth has been limited by its licensing rights being fenced into a few markets: the US, Australia, and New Zealand. However, Apple's direct agreements with music labels and publishers generally give it rights to the countries where iTunes operates, which tops more than 100 countries.
Apple is rolling out iTunes Radio only in the US Wednesday.