by Serge Berger | July 28, 2014 8:02 am
Internet radio company Pandora Media (P) reported second-quarter results last Thursday after the close of trading, and Pandora stock dropped meaningfully as a result in Friday’s trading. Now, P stock looks ready to give us a trade on the short side — particularly if last Friday’s lows fail to hold.
Pandora reported a nearly 40% increase in revenue, to $219 million, on a year-over-year basis. Both subscription revenue and revenue from advertising jumped well more than 30%. Adjusted earnings weakened to 4 cents per share, which edged out the Street consensus by a penny.
At the same time, Pandora raised its full-year earnings guidance from a previous range of 14 to 18 cents up to a new range of 16 to 19 cents. Analysts currently are looking for 17 cents per share.
Following the earnings report, analysts were busy reiterating their targets on (or even upgrading) Pandora stock, with price targets all over the map.
The competition and general interest around Internet-streamed music services continues to be big, which could be seen as both a blessing and a curse for P stock. As the biggest Internet radio company and a large online advertiser, Pandora might have staying power. However, big players like Apple (AAPL) and Google (GOOG) already are making moves into the space and have bigger plans ahead. Earlier in July, it was rumored that Google at one point last year was looking at buying on-demand music service Spotify. All the while Apple, with its advantage of the popular iTunes store and already having bought Beats, is constantly on the lookout to make a next move in the space.
It’s a developing story to say the least, but at least in the near-term, unless a good flurry of news comes along, Pandora stock looks increasingly vulnerable for some more downside after last week’s post earnings selloff.
On the multiyear logarithmic chart, note that after a steep rally in 2013 and early 2014, Pandora stock finally topped in March and began a good consolidation period that quickly also broke the 2012 trendline. After bottoming in late April, the stock bounced and found resistance in early July.
On the daily chart, we can see that when P stock found resistance in early July, it did so at the confluence resistance area made up of the 100- and 200-day simple moving averages (blue and red lines, respectively). Last Friday’s selloff knocked the stock right back down to the support line from late April. From a momentum perspective, Pandora stock is not yet oversold either.
Active investors and traders could consider shorting Pandora stock on a break below last Friday’s lows, for a move into the low $20s. For risk management purposes, note that any quick bullish reversal of Friday’s selling would negate any bearish setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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