Pandora shares jumped nearly 12% after earnings report

Internet radio company Pandora Media’s losses tripled in its second quarter but investors didn’t seem to mind as they pushed the company’s shares up nearly 12% immediately after its financial report was released Wednesday afternoon.

Instead, Wall Street focused on Pandora’s revenue, which jumped 51% from a year earlier to $101.3 million in the quarter ended July 31. Analysts had expected the Oakland, Calif., company to post $100.4 million in sales. Losses of $5.4 million for the quarter were three times last year’s loss of $1.8 million, weighed down by growing music licensing and marketing costs.

Pandora threw the market an added sweetener by issuing forecasts for the current third quarter that were higher than what financial analysts had expected. The company said revenue would be as high as $118 million, exceeding the $114 million analysts had forecast.

In addition, Pandora said it would probably break even in the third quarter or even make a penny a share, fueled by the growing number of mobile listeners who pay $3.99 a month for Pandora’s premium, ad-free service. Pandora also saw a 53% uptick in advertising revenue, which grew to $89.4 million last quarter, up from $58.3 million in 2011.

Pandora’s shares had closed at $10.08, down 10 cents, but spiked by 11.5% in after-hours trading following its earnings release. The stock settled at $10.99, up 9%, by late afternoon.

Still, the digital music company continually struggles to make a profit. That’s because Pandora must pay a music licensing fee each time a song is played. With close to 55 million listeners clocking more than 1 billion hours of music a month, that added up to $60.5 million in fees paid in the second quarter, or roughly half of the company’s revenue.

Pandora has begun to lobby Congress to lower its licensing rate, which is set by the federal Copyright Royalty Board. The company has argued that it pays a far higher rate than satellite radio or streaming radio offered through cable companies.

The rate for satellite radio is set at 7.5% of gross revenue, while cable music service providers pay 15% of gross revenue. Pandora, however, pays about 2 cents per hour of streaming music -- which often has added up to 50% or more of the company’s revenue.

Record companies and musicians, who have become increasingly dependent on revenue from digital music as sales of CDs continue to fall off the cliff, are opposed to lowering Pandora’s licensing rates.

“Instead of trying to shortchange its own suppliers, Pandora should perhaps follow recent recommendations of Wall Street analysts and invest in monetizing its service,” the Recording Industry Assn. of America said in a statement issued Wednesday.

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