Pandora: Investors Don’t Hear the Music

Even though Pandora (NYSE:P) is a next-generation online music operator — with a focus on the radio market — its post-IPO stock performance has been lousy. Since mid-June, the shares are off 43%. Then again, investors have been skeptical about whether Pandora can generate a profit. Doesn�t the company have to pay substantial amounts to license its content?

Perhaps so. But in the latest quarter, Pandora was able to produce net income of $638,000 (break-even on an earnings-per-share basis). This compares to a loss of $1 million, or 15 cents per share, in the same period a year ago.

What�s more, Pandora continued to grow at a torrid rate. Revenues nearly doubled to $75 million, which handily beat the Wall Street consensus of $71 million. Breaking things down, advertising revenues soared 102% to $66 million, and subscription revenues increased by 80% to $9 million.

All in all, Pandora continues to pull in large numbers of new users, especially for its mobile apps. Total active users are at 40 million, up 65% over the past year. They listened to 2.1 billion hours of music during the quarter.

In fact, Pandora doubled its share of the overall radio market to 4.3%. A key factor is the strategy for in-vehicle integration with companies like Ford (NYSE:F), Mercedes-Benz, Toyota (NYSE:TM), GM (NYSE:GM) and Honda (NYSE:HMC).

Even with all this good news, investors still weren’t satisfied. After the earnings report, the stock fell by a grueling 10%. Actually, the shares have gone from $15.62 to $10.60 over the past couple weeks.

Keep in mind that Pandora gave somewhat uninspiring guidance for the next quarter. Revenues are expected to range from $80 million to $84 million, with a non-GAAP loss of 2 cents to 4 cents per share.

For the most part, it isn’t easy to keep up such hefty growth rates, especially in the dragging U.S. economy. Besides, Pandora is facing a variety of competitors, including Spotify, MOG, iHeartRadio, Slacker and Rdio. What�s more, Apple (NASDAQ:AAPL) is getting more aggressive with its cloud-based service as is Amazon (NASDAQ:AMZN).

So, for investors who are looking for growth, Pandora may not be the right pick for now.

Tom Taulli runs the InvestorPlace blog �IPO Playbook,� a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of �All About Short Selling� and �All About Commodities.� Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.