Pandora Media Inc, operator of the leading Internet radio service, reported a lower-than-expected increase in listeners in the third quarter, sending the company's shares down 8 percent in extended trading on Thursday.
Pandora said it had 76.5 million active listeners as of Sept. 30, an increase of 5.2 percent from a year earlier.
Analysts, on average, had expected 76.7 million, according to market research firm StreetAccount.
Total listener hours rose to 4.99 billion from 3.99 billion, but again fell short of the average estimate of 5.02 billion.
"In an increasingly competitive environment, driving monthly active user growth will be more challenging particularly given our already significant market position," Chief Executive Brian McAndrews said on a call with analysts.
"As a result, looking ahead, expecting monthly active user growth at the historic levels is not realistic."
Despite its huge user base, Pandora faces stiff competition in the fast-growing business from services such as Spotify, Sirius XM, Apple Inc's Beats online streaming service, Google Inc and Amazon.com Inc.
Pandora's profit and revenue both beat market expectations, however, as more people listened to streamed music on their mobile phones.
Mobile revenue increased 52 percent to $188 million, while local advertising revenue rose 118 percent to $41.8 million.
Rising listener numbers are a double-edged sword for Pandora - the more listeners it has, the more it has to pay in royalties to artists and record labels.
SoundExchange, which collects royalties on behalf of artists and labels, offered a proposal last week that could greatly increase Pandora's royalty rates from 2016. (http://bit.ly/1yNGzOS)
"Pandora has paid more than $1 billion in cumulative royalty payouts, and a highest rate among any form of radio," Chief Financial Officer Mike Herring said on the call.
"We are confident that we have put together the best economic and legal team to represent Pandora and provide a solid, fair and logical argument regarding the (SoundExchange) reproposal," Herring said.
Pandora reported an adjusted profit of 9 cents per share, on revenue of $239.6 million. Analysts on average expected earnings of 8 cents per share on revenue of $238.49 million, according Thomson Reuters I/B/E/S.
The company raised its full year revenue forecast to $912 million-$917 million, from $895-$915 million.
It also increased its adjusted net profit estimate to 19-21 cents per share from 16-19 cents.
Pandora's shares were trading at $21.27 after the bell, after closing at $23.12. (Reporting by Amrutha Penumudi in Bangalore; Editing by Savio D'Souza and Ted Kerr)