Shares of Pandora Media Inc. fell as much as 26% during intraday trade on Friday, driving the internet radio company’s stock to all-time lows.
Pandora P, -26.38% reported Thursday what some analysts have called disappointing third-quarter results. The company missed Wall Street expectations on revenue, and the spotlight was on advertising revenue.
Ad revenue grew 1% year over year in the quarter, well off Wall Street’s forecast of 6% growth. Pandora said an increase in the average price per ad was offset by a decline in the number of ads sold.
“Pandora, unfortunately, has hit a wall with ad trends, and we don’t see a quick fix”, B. Riley analyst Barton Crockett wrote in a note to investors. “The main issue right now appears to be lagging ad tech. Pandora is losing ad buys from clients seeking programmatic ads, seeking better ROI reporting and seeking better integration into traditional media audience target planning tools, as well as inclusion in traditional radio Nielsen/Arbitron rating systems.”
Pandora’s newly appointed fifth chief executive, Roger Lynch, addressed the need for improved ad technology during the company’s quarterly conference call with analysts, while calling Pandora “a business in transition.”
Lynch said they need significant upgrades to the advertising technology and capabilities offered to advertisers.
Analysts at J.P. Morgan, while in agreement, downgraded Pandora shares to neutral from overweight, saying the turnaround is going to take time.
See: Tim Westergren’s exit from Pandora is just the first step in the company’s turnaround
“Our downgrade comes late as we have been trying to stick with Pandora through its multiple management changes and multi-year turnaround process”, J.P. Morgan lead analyst Doug Anmuth wrote. “However, near-term advertising trends are deteriorating and we believe it will take time for the company to realize the benefits of its ad tech investments.”
BTIG analyst Rich Greenfield said Pandora is a broken record, and he questioned why advertisers would, or should continue to choose Pandora over all the other digital options.
Since going public in 2011, Pandora has touted its ability to steal away share from the terrestrial radio advertising market, Greenfield points out, and the script hasn’t changed despite failing to do so.
“If an advertiser is going to shift from terrestrial radio to digital, why would they not explore all options in digital-they are not simply going to stick with audio advertising online because it helps Pandora?” Greenfield wrote in a blog post. “While audio has been a cheaper way for small businesses to reach consumers in the offline world, that is not the case in the online/digital world.”
Pandora shares are down nearly 59% in the year to date, while the S&P 500 index SPX, +0.22% is up more than 15% and the Dow Jones Industrial Average DJIA, +0.09% is up 19%.
