Pandora (P) stock has cratered 13% to close the week on a poor earnings report.
And while some of the decline in Pandora stock can surely be attributed to sellers overwhelming the market on a low-volume Friday, the bottom line is that the beating was well-deserved.
And if you own P stock, you should get ready for more pain — or perhaps sell even after the pounding caused by these ugly Pandora earnings.
Here are the details:
- Pandora earnings totaled 4 cents per share on revenue of $218.9 million in the June quarter. That beat Wall Street estimates on both counts … except that was using non-standard accounting. Under generally accepted accounting practices, or GAAP, Pandora stock actually operated at a loss of $11.7 million or 6 cents per share.
- Furthermore, the company projected that profits in the upcoming quarter would be between 5 cents and 8 cents, below analyst estimates for future Pandora earnings.
- Bigger-picture, Pandora user growth remains a big concern for investors. Though on a quarterly basis the number of active listeners grew 7.5%, to 76.4 million, the month-to-month change from May to June was actually negative. Pandora stock is not profitable, so it’s crucial the company keeps growing as a way to monetize its business better; thus, even a small bump in the trajectory of listeners is a bad thing for investors.
When you throw in the fact that Pandora stock was already down about 25% from its March highs before this report, you can understand why it was such a bloodbath.
What’s Next for Pandora Stock
Situations like this are grim for investors holding P stock right now. When you bank on a stock like Pandora, which has big growth potential but no current profits to speak of, you are taking a risky bet that the cards will fall right, that the company will deliver growth and profits, and that the stock will deliver big gains as a result.
But for every stock like Tesla (TSLA) — which saw its shares explode as it went from a speculative startup to a legitimate electric vehicle company turning a profit — there are plenty of horror stories.
Take 3D Systems (DDD) and FireEye (FYE) as two recent examples; both momentum stocks are down more than 40% from their 2014 highs as the narrative of endless growth didn’t jibe with the reality of sales and profit numbers.
A stock like Pandora could be wandering in the desert for a while, then, as burned investors stay gun-shy and the rest of the Wall Street sees plenty of other more attractive places to park cash.
My advice: Simply ask yourself if there’s a better stock out there than Pandora right now — one that you have more confidence in.
I don’t think that’s a high bar to get over, given the negative sentiment in Pandora stock and the fact that even after this flop, P stock still has a forward price-to-earnings ratio of 50 based on FY2015 forecasts.
But if you believe the story and think the stock is fairly valued now, by all means, keep holding.
Me? I’m not touching Pandora stock at all, even after the crash. Because I’m not entirely convinced that the damage is completely done yet.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.