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Pandora Gets Hammered After Reporting Massive 4Q Loss


Pandora is losing money, but it could be reaping the benefits of the growth of mobile.

How is a highly rated company that just reported that it grew revenues by 71% losing a quarter of its share price?

Investors are laying into Pandora (P) after the music-streaming service reported a massive loss in the fourth quarter and issued disappointing sales estimates for the first quarter. The stock sank below $10 this morning. At 11:30 a.m., the stock was down nearly 25%.

Pandora was one of the highest-profile tech IPOs of 2011 but one of the hardest to call. Pandora's algorithms pick songs and artists that users might enjoy. The product is available for free with advertisements or as a premium service for $36 per year.

Pandora's business model forces it to play by broadcasters' rules, and this is one of the reasons for the company's $8.17 million loss last quarter. Pandora has to pay artists (and record companies, of course) full royalties every time a song is played. This applies even if the user skips the song after one second. While revenues are growing fast, content-acquisition costs more than doubled since the fourth quarter of 2010 to $48.2 million.

Monetizing Mobile

There are some upsides to Pandora that should at least give one pause before pressing the sell button. Analyst opinion on the stock is mostly positive. Just yesterday, Stifel Nicolaus analyst Jordan Rohan upgraded Pandora to a 'buy' with an $18 price target. One of Pandora's greatest strengths, Rohan says, is its status as a staple app in mobile devices. Rohan sees Pandora leveraging its status as a "must-have tablet and connected device application" with more ears than any traditional broadcaster into an extremely profitable mobile ad platform.

CEO Joe Kennedy told CNBC that Pandora's mobile advertising quadrupled to $100 million in one year, making it second only to Google (GOOG) in the growing market. Mobile ad revenue per listener hour is up from $13 per 1,000 hours last year to $20.

JPMorgan analyst Doug Anmuth also upgraded Pandora, with a $22 price target.

Ford (F), General Motors (GM), and other automakers now give drivers the opportunity to tune in to Pandora while on the road, helping Pandora steal listeners from traditional radio competitors.

The company is projecting a loss for this quarter as well as the full year as it invests more in technology, expanding its already-dominant market share and growing its ad sales team.

Twitter: @vincent_trivett
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