Investors Press Pause on Pandora After Earnings

Shares of online music streaming service Pandora sold off today, after the company reported what looked to be a pretty solid earnings report. Motley Fool tech and telecom bureau chief Evan Niu, longtime Pandora skeptic, notes that there were actually several things from the report to like. One of the biggest key things for investors to note from the report was the company's revenue growth, and how it dramatically outpaced royalty costs, with 57% and 30% increases respectively, something that is essential to Pandora's business. Also, the company's revenue per 1,000 impressions, a common metric for Pandora, is at record levels, with this quarter being the most profitable quarter the company has ever posted.

But the market is forward looking, and the problem here was Pandora's guidance. The company is ramping up spending on its sales force, which is going to impact the company's bottom line this year. Using human salespeople instead of automated sales is inherently less scalable, and may, at first glance, cause concern for the company's growth; but it's also more effective, especially in local markets. Evan discusses where Pandora will be concentrating this year, and what to look for with the company going forward.

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Erin Kennedy has no position in any stocks mentioned. Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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