Thursday 21th after the closing bell Pandora Media (P) released its quarterly earnings that beat top-line estimates:
Revenues jumped 50.3% year over year to $180.4 million, which beat Consensus Estimate of $174.76 million. Eps was 0.06 in line with estimates.

The implied volatility of the stock due to the earning release was as high as 12% but seconds after the release the stock tumbled 6% and then recovered swinging between positive and negative territory for the whole trading day and closing at -1,5%.

Pandora reported total listener hours of 4.18 billion, up 17.0% on a year-over-year basis. We believe that the rise in listener hours may have resulted from Pandora’s change of policy related to listening limits.
Active users increased 20.0% from the year-ago quarter to 70.9 million.
However, what’s more important our bear case is that the number of active listeners in October declined from 72.7 million in Sep 2013. We believe that the slowdown resulted from the launch of Apple ‘s iRadio service.
In our view this is just the initial hint that confirms that Pandora is now operating in a tougher market and competition will result in margin compression and users loss.

Pandora also decided to convert the earning release to a calendar based fiscal year. As per the company, the next earnings results will cover a two month transition period ending Dec 31, 2013.
Analysts found it quite annoying because they now have to make new estimates on different time frames; some of them even claimed that this could mean earning manipulation on the coming releases
For fiscal 2014 (ending Jan 31, 2014), revenues are expected to be in the range of $657.0 million to $662.0 million, while earnings are expected to be in the range of 3-5 cents per share.

This is why we are bearish on Pandora: even at the high-end of its 2014 EPS forecast  (5 cents), the stock today trades at 550+ times 2014 forward earnings, are you sure you want to pay so much for a company whose business is now put in serious troubles by other major firms (Spotify, Apple, Google…)?


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