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What's in the Cards for Pandora Media (P) in Q3 Earnings?

Pandora Media, Inc.P is set to report third-quarter 2016 results on Oct 25. It delivered a positive earnings surprise of 13.33% in the last quarter. Also, it has a positive four-quarter average earnings surprise of 15.15%. Let's see how things are shaping up for this announcement.

Factors to Consider

Pandora has undertaken several strategic initiatives to overhaul its operations to provide all of "radio, on-demand and live music" on its own platform. In Sep 2016, the company announced Pandora Plus. Plus is a "one-of-a-kind, ad-free radio experience" available for $4.99 per month. The new service allows "more skips, replays and an ingenious solution for offline listening that elegantly handles issues with lost connectivity and cellular data usage."

Also, as part of its strategy, Pandora acquired companies like Next Big Sound, Rdio and Ticketfly. In addition, it is cutting label deals to reduce dependence on CRB rates and better manage its content costs. It recently struck licensing deals with Sony Music, Warner Brothers and Universal Music Group.

There is no denying that Pandora holds a prime position in the online radio market. But even then the company has been struggling to make profits. Rising costs related to licensing, footprint expansion and higher operating expenses will continue to be a drag on profitability.

Also, competition is intense. The digital music streaming industry is expected to grow rapidly over the next few years, and hence all the players including Pandora, Apple, Spotify, and Amazon are striving to fortify their presence in the industry.

For the third quarter of 2016, revenues are projected in a band of $360 million to $370 million. The company expects adjusted EBITDA (excludes stock-based compensation expense of $35 million, provision for income taxes of $0.5 million, depreciation and amortization expense of $16 million and some other expenses) to be in a range of loss of $5 million to profit of $5 million.

Earnings Whispers

Our proven model does not conclusively show that Pandora Media is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Pandora has an ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 21 cents.

Zacks Rank: Pandora has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

PANDORA MEDIA Price and EPS Surprise

PANDORA MEDIA Price and EPS Surprise | PANDORA MEDIA Quote

Stocks to Consider

Here are a couple of stocks that, as per our model, have the right combination of elements to post an earnings beat this quarter:

Amazon.com, Inc. AMZN with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Mercadolibre, Inc. MELI with an Earnings ESP of +8.24% and a Zacks Rank #1

Apple Inc. AAPL with an Earnings ESP of +1.21% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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