Pandora Sez 2Q Revenue, Listening Is Up

Pandora Media shares tumbled more than 11% in after-hours trading before paring the loss to about 6% Thursday evening, highlighting investor uncertainty amid the music industry's fast-changing landscape.

Pandora's volatile stock has more than doubled since the start of the year, but investors bailed Thursday after the Internet-radio giant reported that its fiscal second-quarter loss widened and narrowed its third-quarter earnings guidance. For the third quarter, Pandora forecast adjusted earnings between three cents and six cents a share according to Hannah Karp at wsj.com.

Pandora's chief executive, Joe Kennedy, said in an interview that the after-hours volatility showed the market was sorting through the information. He pointed out that the company nearly doubled its mobile-advertising revenue for the quarter, and added that the narrowed earnings guidance was indicative of the company's desire to reinvest "a good part" of its earnings in ad sales and product development.

The company reported record revenue, up 58% from the year earlier period, and raised its third-quarter revenue forecast to $179 million from $174 million.

Joe Kennedy

But, writes Karp,  Pandora executives' bravado on recent earnings calls hasn't jibed with the more dismal picture the company has painted as it has lobbied lawmakers to reduce the royalty rates it must pay artists, record companies and music publishers for the digital use of their songs. Pandora uses a compulsory license from the government to use music digitally at rates determined by a panel of federal judges, and the rates it pays are generally higher than those paid by terrestrial radio broadcasters, which Pandora considers its closest competitors.

Pandora is involved in two separate lawsuits over royalty rates, one it initiated against the American Society of Composers, Authors and Publishers, known as ASCAP, last year and the other brought by Broadcast Music Inc., or BMI, several months ago, following Pandora's purchase of a terrestrial radio station in a bid to qualify for the lower rates broadcasters pay to use music digitally. Court decisions aren't expected until 2015.

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Total listener hours: Total listener hours grew 18% to 3.88 billion for the second quarter of fiscal 2014, compared to 3.30 billion for the second quarter of fiscal 2013.