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Bear of the Day: Pandora Media (P)

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Originally launched in 2000, Pandora Media (P - Free Report) is often referred to as an Internet radio pioneer. Its technology has helped it lead the free online music listening movement. With Pandora, a listener can enter a single song, artist, or genre to start a station, and its mathematical algorithms will combine with individual and collective feedback to suggest songs and build personalized playlists.

Pandora offers its users a free, ad-supported version, as well as Pandora Premium, a $9.99 per month subscription that lets you play and choose any song or album and utilize playlist creation features.

Sitting at a Zacks Rank #5 (Strong Sell), Pandora reported mixed fourth-quarter results, but the company has been on a steady decline for a few years now. Is there any chance for a rebound for this Internet radio innovator?

Q4 Earnings: A Deep Dive

Last week, Pandora reported an adjusted loss per share of 21 cents, missing the Zacks Consensus of a loss of 7 cents and falling short of the year-ago quarter’s loss of 13 cents per share as well.

Revenues grew just 0.7% to $395 million, which beat our consensus estimate of $375 million. If you exclude sales from Ticketfly and the recent winding down of operations in Australia and New Zealand, sales would have climbed 7%.

Subscription and other revenues increased as well, up 63.2% year-over-year thanks to subscriber growth and higher average revenue per paid subscriber (ARPU).

ARPU was $6.08, up 32.8% from the year-ago period; this metric was driven by growth in Pandora Premium subscribers.

However, advertising revenues fell 5% to $297.7 million, while total listener hours declined 6.5% on a year-over-year basis to 5.03 billion. The number of active listers also decreased, down 6% year-over-year to 74.7 million.

Earnings Estimates

For the current quarter, one analyst cut their outlook in the last 30 days, and the consensus has dipped from $-0.25 to $-0.26. Earnings are expected to decline about 8.3% for this time period.

Three analysts have revised their estimates downward for the current fiscal year, though earnings are expected to grow over 51% in that time frame.

Looking at the next fiscal year, earnings could grow over 77%, but analysts have been slashing their outlook for this time period as well. And, the current consensus has dipped from $-0.04 to $-0.08 in the last 30 days.

What’s Next for Pandora?

Shares of Pandora are down nearly 11% so far this year, and have plummeted almost 67% in the past one year.

The company has no P/E since it is making no profit at the moment.

Despite its success in the world of online music, Pandora’s technology has been overshadowed by streaming services like Spotify and Apple’s (AAPL - Free Report) Apple Music, especially as streaming becomes the preferred way to listen to music.

The company had a just awful past year on the stock market, but there are some bright spots in its management’s strategy, as well as a turnaround plan starting to see results.

Looking ahead, Pandora hopes the launch of Premium Access will boost subscriptions to its Premium service. And, expanded partnerships with Sonos, Comcast’s (CMCSA - Free Report) Xfinity X1, Alphabet’s (GOOGL - Free Report) Android TV, and Amazon’s (AMZN - Free Report) Fire TV are also expected to drive results.

While the near-term is a little scary looking for the company, Pandora seems to be moving in the right direction, with growing subscription revenue, good management, and a solid path towards getting back to profitability.

For investors looking for an Internet Services stock with more potential right now, they should consider Akamai Technologies (AKAM - Free Report) , a Zacks Rank #2 (Buy) stock that anticipates earnings growth of about 13.7% for its current fiscal year.

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