Let’s Examine Pandora Media’s Big Surprise and Difficult Justifications

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Pandora’s (NYSE:P) Q4 beat resulted from slightly better-than-expected operating expenses. Revenue was $125 million, vs. our estimate of $125 million, consensus of $123 million, and guidance of $120 – 123 million. Non-GAAP EPS was $(0.04), compared with our estimate of $(0.06), consensus of $(0.05), and guidance of $(0.09) – (0.06).

Strong FY:14 guidance. The company provided initial FY:14 guidance for revenue of $600 – 620 million and non-GAAP EPS of $(0.05) – 0.05, vs. our prior estimates of $536 million and $(0.12), and consensus of $600 million and $(0.02). Q1:14 guidance is for revenue of $120 – 125 million and non-GAAP EPS of $(0.13) –(0.10). We are increasing our FY:14 estimates for revenue to $620 million from $536 million, and for EPS to $0.05 from $(0.12), in line with guidance.

FY:14 guidance reflects confidence in the revenue build, and at the high-end exceeds the Street’s expectations. Pandora is guiding to FY:14 revenue growth of 40 – 45% (compared to 56% in FY:13), suggesting that significant growth will continue next year. We think that revenues will likely scale with listening hours, and note that EPS guidance implies only slight operating leverage…