Tomahawk, WI 05/07/2014 (Basicsmedia) – The growth phase of Pandora Media Inc (NYSE:P) seems to be over for now. Pandora shares had reached historic highs of nearly $40 in March but are now trading in the $20s.

1Q2014 Results

Pandora reported GAAP revenue of $194.3 million in 1Q2014 which was an increase of 69% over 1Q2013 and non-GAAP revenues of $180.1 million which was an increase of 54% over 1Q2013.

While this is certainly good news, it’s another question if the company can maintain such a pace of growth in the future. Hence, when Pandora made revenue projections of $213 to $218 million in 2Q2014 representing a 37% increase from 2Q2013, analysts were clearly concerned.

Other bits of bad news in the quarterly results were an increase in operating costs of 72%, an increase in sales and marketing expenditure by 63% and finally near doubling of general and administrative costs. Pandora reported a $29 million loss for 1Q2014 which was better than the loss figure of $38 million in 1Q2013 but clearly Pandora is still a loss-making company.

Also, Pandora’s active user base declined from 76.2 million in 4Q2013 to 75.3 million at the end of 1Q2014.

Can Pandora Survive Serious Competition?

What if Apple Inc. (NASDAQ:AAPL) decides to focus on growing iTunes Radio and monetizing the 200 million subscribers of iTunes that Apple already boasts of. Music streaming is not a unique technology that only Pandora has access to. Spotify is one more Pandora competitor that is rumored to be planning an IPO later this year. There is nothing particularly distinctive about Pandora that differentiates its music streaming service from others.

With Siri integration, iOS integration and the option to purchase music from iTunes — which is also compatible with iTunes Radio — Apple seems to offer many features that Pandora does not.

Promotion Stations

Pandora has launched a new “promoted stations” feature which is designed to grow advertising revenue for Pandora. This experiment is rather important for Pandora as it gets nearly 80% of its revenue from advertising. The idea behind “promoted stations” is that companies will pay Pandora to use its streaming service to broadcast their ads and content.

Only ten brands are involved in the ad experiment so far and only around 10% of Pandora listeners will be exposed to this experiment. Pandora certainly needs this and other innovative initiatives to click with its subscribers for it to have any chance of continuing revenue growth over the next many quarters.

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