Pandora slides as analyst sees challenges

SAN FRANCISCO (MarketWatch) � Pandora Media Inc. shares slipped to their lowest level of the year Thursday as an analyst�s downbeat coverage report countered the company�s statistics about growth in its listener levels.

Pandora P �shares fell to as low as $9.62, equaling where the stock hit on March 29, before ending the day with a loss of 13 cents, or 1.3%, to close at $9.92 as the market weighed comments from Barclays Equity Research analyst Anthony DiClemente, who initiated his coverage of Pandora with an underweight rating.

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DiClemente also set a price target of $8 a share on Pandora�s stock. In a research note, he wrote that while Pandora �is already the leader in the growing Internet radio market,� increasing content costs and the ability to make money from the mobile-listening market will weigh on Pandora�s ability to turn a profit.

�We do not expect Pandora will be profitable until [fiscal year] 2016,� DiClemente said. �Revenue continues to grow at a rapid clip, but content acquisition costs linger above 50% of revenue.� DiClemente added that he believes Pandora �will have a hard time leveraging its content costs as royalty rates are variable and based on total listener hours and gross revenue.�

/quotes/zigman/5419837/quotes/nls/p P 10.56, +0.25, +2.42%

Content-acquisition costs were cited as a big reason why Pandora�s stock took a hit following its fiscal fourth-quarter earnings report on March 6. At that time, Pandora said that its content-acquisition costs in the quarter more than doubled to $48.2 million from $23.9 million in the year-ago quarter. Read Rex On Techs column about Pandora's mobile-advertising revenue issues.

DiClemente�s coverage initiation occurred the same day that Pandora released statistics on its listener metrics during March, which showed more listeners using Pandora�s service over a year ago.

Pandora said it topped more than 1 billion listener hours in the month, nearly doubling the 567 million hours it reported in March 2001. The company�s total share of U.S. radio listening rose to 5.8% from 3% a year ago, while Pandora reported 51 million active listeners during March, a 59% increase over last year.

Pandora also said it has made more moves in what is considered to be the critical local-advertising market, with more than 400 local ad campaigns slated to run this year.