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For Pandora, getting more listeners costs more money

Wednesday, 5 Feb 2014 | 5:56 PM ET
Pandora Q4 earnings out
Pandora is reporting Q4 EPS of $0.11 ex-items on revenue of $201 million, with CNBC's Josh Lipton.

Pandora Media reported higher revenue and profit for the quarter ending in December but said that costs to grow its audience is rising.

For the quarter ending December, Pandora reported that revenue grew 52 percent to $200.4 million on a GAAP basis. Net income rose to $8.9 million, or 4 cents per share, from $1.6 million, or 1 cent per share, in the year-ago period.

The online streaming music company said that earnings per share for the full year is expected to be between 13 cents and 17 cents, below analysts expectations of 19 cents per share, according to Thomson Reuters I/B/E/S.

Shares of Pandora fell almost 6 percent in after- market trade on Wednesday after closing at $35.83.

(Watch: Pandora rebounded nicely amid the competition)

"It's clearly that they are spending more to acquire customers and sell ads,'' said Michael Pachter, an analyst with Wedbush Securities. "I think they are intent on growing."

Indeed, Pandora Chief Executive Brian McAndrews said in a statement that the company will continue to "aggressively invest" this year to sustain audience growth. "Our bias will continue to be toward revenue growth and capturing additional market share,'' he said.

More upside for Pandora: Trader
FMHR trader Pete Najarian thinks Pandora "owns its space," while Mike Murphy sees growth slowing for the company.

Pandora is already one of the world's most popular streaming music services although it has plenty of competitors, including Spotify and Apple's iTunesRadio. It has more than 76 million active users.

Pandora Chief Financial Officer Mike Herring told Reuters that Pandora plans to build up its sales force in local markets to go after ad dollars that typically go to radio.

"It's not a time to try and optimize profitability," he said. "We think we have a huge market opportunity in front of us."

(Read more: What? John Popper is cool with tiny Pandora payout)

Many digital and social media companies like Amazon, for example, choose to ramp up revenue and market share over profits.

By Reuters

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