Pandora Falls After Hours On Weak 2014 Revenue Guidance Despite Strong Q4 EPS Of $0.11

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Today Pandora reported its fourth-quarter financial performance, essentially matching revenue expectations, and beating on earnings per share. For the period, Pandora had non-GAAP revenue of $200.8 million, and non-GAAP earnings per share (diluted) of $0.11.

Investors had expected $0.08 in earnings per share and revenue of $201 million. Given those results, why is Pandora falling so heavily in after-hours trading? I think there are two things to blame: Slow listener growth, and lower-than-expected revenue projections for the current quarter and year.

In its earnings report, Pandora stated that in the fourth quarter, its users listened to a total of 4.54 billion hours of audio, up a slim 16 percent from the year-ago quarter (3.91 billion). So while the company’s full-year revenue was up a strong 56 percent,  that end-of-the-year metric was lackluster.

Combine that with the following guidance for the first quarter of this year, and you have a somewhat uninspiring short-term future ahead for the company: “Non-GAAP revenue is expected to be in the range of $170 million to $176 million. Non-GAAP basic and diluted EPS is expected to be between a loss of $(0.16) and a loss of $(0.14).”

The company declined to estimate its full-year GAAP earnings per share. Also, the company’s full-year outlook of $870 million to $890 million is under prior street estimates.

All told, the Oakland, Calif.-based Pandora is sometimes profitable, has hundreds of millions of cash in the bank, and sports a growing user base. But its growth appears to be under the rates that investors used to price its shares in their projections. And that is a cardinal sin for a technology company valued on a growth curve higher than its — now apparent — reality.

If there is a metric that I would highlight as indicative of potential future growth for the firm, it would be the following: “Advertising revenue was $162.0 million, a 39% year-over-year increase. Non-GAAP subscription and other revenue was $38.8 million, a 132% year-over-year increase.”

Provided that Pandora can continue to convince more people to start paying it directly, it could better monetize its extant user base, boosting its ARPU effectively, making its financial performance less tied to raw listener growth.