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Pandora shares hammered, even as it grows

WHEN DOWN IS UP: Pandora stock was slammed yesterday, falling 24%, after the online radio service reported that revenue missed expectations in its latest quarter and that it would likely report yet another loss for the fiscal year ending January 2013. The bloodletting, though, may actually give investors an opportunity to cue up Pandora in their portfolio playlist, says the Wall Street Journal. Pandora's dilemma is that users are streaming more music every month. While this should lessen concerns that new, online music rivals like Spotify could eat into its business, the company's success means costs are growing faster than revenue. That’s because Pandora pays royalties for every song streamed, regardless of whether it has advertisers lined up. And Pandora hasn't been able to sell ads fast enough to keep up, a big issue since advertising drives 90% of sales. The problem for the company, and the opportunity for investors, is that it will take time to capture a larger share of ad budgets. Pandora only recently began hiring sales staff. Meantime, many traditional radio advertisers aren't yet set up to buy Internet ads. But they won't be able to ignore Pandora for long. The site already boasts a 6% share of radio-listening hours in the U.S. (3/8a)

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