Will Pandora Media (P) Surprise this Earnings Season?

Pandora Media Inc. (P) is set to report second-quarter fiscal 2014 results on Jul 24, 2014. In the previous quarter, the company reported loss of 21 cents per share, wider than the Zacks Consensus Estimate of a loss of 19 cents.

 

Let's see how things are shaping up for this quarter.

 

Growth Factors in the Past Quarter

 

We believe that Pandora will benefit from growing listening hours, market share gains and introduction of the new music recommendation unit called Promoted Stations. In May 2014, listening hours jumped 28.0% to 1.73 billion, reflecting Pandora's steady growth in the U.S. web-based radio market. 

 

Promoted Stations will feature sponsor-branded listening stations. We believe that this newly-launched feature will work especially well on mobiles, which accounts for about 80.0% of Pandora's overall listening and 74.0% of the company's last-quarter revenues.

 

However, rising cost of licensing music remains a major concern in the near term. We believe that Pandora's move to raise ad-free subscription price may result in a higher churn-rate in the near term. Further, intensifying competition from the likes of Apple, Google (post the Songza buyout), Sirius XM and Spotify remains a major headwind.

 

Earnings Whispers?

 

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

 

Zacks ESP: Pandora currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 4 cents.

 

Zacks Rank: Pandora has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP, makes surprise prediction difficult.

 

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

 

Other Stocks to Consider

 

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

 

Silicon Motion (SIMO), with an Earnings ESP of +33.33% and a Zacks Rank #1 (Strong Buy).

 

Synaptics (SYNA), with an Earnings ESP of +0.81% and a Zacks Rank #1. 

 

F5 Networks (FFIV), with an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy).