Why Pandora Media Inc. Stock Plunged Today

What happened

Shares of Pandora Media Inc. (NYSE: P) fell as much as 11.3% early Thursday, then partially recovered to trade down 7.5% as of 3 p.m. EST, after the music-streaming specialist's strong fourth-quarter results were overshadowed by light forward guidance.

Pandora initially popped nearly 10% in yesterday's after-hours trading when the company announced its quarterly revenue had arrived at $395.3 million, above guidance for $365 million to $380 million. Pandora also delivered positive adjusted EBITDA of $5.8 million, well ahead of its outlook for an adjusted EBITDA loss of $5 million to $15 million.

So what

Pandora credited its strength to a 25% increase in paid subscribers to its Pandora Plus and Pandora Premium services, which drove accelerated 63% growth in subscription revenue to $97.7 million. Those gains more than offset a 4.4% adjusted decline in revenue from Pandora's core advertising business, to $297.7 million. That decline was driven by a combination of fewer listener hours (as Pandora focuses on fostering its subscription services), and a difficult comp given significant political ad spending in last year's fourth quarter.

Looking to the first quarter of 2018, however, Pandora told investors to expect revenue ranging from $295 million to $305 million -- below expectations for $323 million.

Now what

"Many of our growth initiatives are still in early stages, and their impact will build over the course of 2018," explained Pandora CEO Roger Lynch during the subsequent conference call. "This means that Q1 will incur a lot of the same ad-revenue headwinds as the second half of 2017."

This shouldn't be entirely surprising. After all, when Lynch took the helm last quarter, he outlined a veritable chorus of opportunities for Pandora to improve its business and find incremental growth: new investments in advertising technology, marketing changes, new content launches like podcasts, and additional distribution partnerships.

But while the market is a forward-looking machine, it also hates being effectively told to hurry up and wait. So however promising Pandora's long-term potential, it's unsurprising to see the stock pulling back today in response.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.