Pandora collapses 20% following lower than expected Q3 revenue of $120 million

Today Pandora reported third quarter revenue of $120 million, which fell short of analyst and investor expectations. The revenue figure is a 60% rise of the same quarter last year.

The company reported GAAP earnings per share of $0.01. On a non-GAAP basis, Pandora reported earnings per share of $0.05. The company expects a loss of $0.06 to $0.09 per share on a non-GAAP basis for the coming quarter. Also for the coming quarter, Pandora expects revenue to be all but flat at between $120 million and $123 million.

Pandora has but $80 million in cash on hand. It ended the day with a valuation of $1.6 billion. It will be far below that come the morning.

The company’s stock has fallen more than 20% in after hours trading. Pandora has recently been involved in a contentious fight on Capitol Hill concerning radio royalty fees. On a happier note, Pandora’s active users nearly hit the 60 million mark, up 47% year over year. Also, “[t]otal listener hours grew 67% to 3.56 billion for the third quarter of fiscal 2013, compared to 2.12 billion for the third quarter of fiscal 2012.” The service apparently is not having a hard time getting its users to hit the play button, as its total hours listened grew faster on a percentage basis than its user base did.

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Quite obviously, the company’s expected Q4 losses have spooked the street, overshadowing its minor profitability and almost in-line revenue for the third quarter.

The company has come under increasing fire from Spotify, and more recently Microsoft’s new Xbox Music product that offer streaming on demand, and radio functionality, which could encroach on its ability to acquire new users on a profitable basis.

For the coming fiscal 2013 year for the firm, Pandora expects revenues of between $422 million and $425 million.

If Pandora manages to secure a better royalty rate through legislation, the company could experience higher levels of marginal profitability. If, however, it is forced to continue at its current fee rates, it may struggle.