Pandora Earnings Unlikely to End Long Downtrend

Pandora Media, Inc. (P) missed EPS estimates by 14 cents, reporting a loss of 21 cents per share in Wednesday's post-market release, while revenues rose above modest expectations. Market players decided that the glass was half full, bidding up the lowly social media play by 10% before profit taking set into motion. The stock is set to open Thursday's regular session below three-month range resistance centered around $5.40. 

The stock has struggled since topping out just above $40 in 2014, caught in a vicious downtrend that has held near an all-time low since November 2017, when it lost more than 20% in a single session in reaction to a weak third quarter report. Sadly, the latest results are unlikely to attract skeptical buyers who have watched the company lose ground to streaming music offerings by category killers Alphabet Inc. (GOOGL) and Amazon.com, Inc. (AMZN).

Ominously, positive subscription rates have failed to translate into profits in the past year, with a 25% annual growth rate and an impressive 63% fourth quarter year-over-year uptick. Those impressive metrics didn't stop the company from reducing first quarter guidance to the price zone of $295 million to $305 miliion from an expected $323 million. The company also expects red ink to keep flowing into 2019, giving interested parties few reasons to hop on board. (See also: Pandora Restructures in Fight Against Spotify.)

P Long-Term Chart (2011 – 2018)

The company came public at $20 in June 2011 and entered an immediate downtrend that ended at $7.08 nearly 18 months later. It bounced strongly into 2013, lifting above the IPO print in July, ahead of a rapid advance that posted an all-time high at $40.44 in March 2014. Shareholders then became bag-holders, caught in a multi-wave decline that crossed the IPO print once again in October.

It found support at $9.20 in January 2016, entering a recovery wave that stalled in the mid-teens just seven months later. A year-end test at range resistance failed to stir buying interest, yielding a decline that completed an inverse cup and handle breakdown after October 2017 earnings. The breakaway gap between $7.30 and $5.50 remains unfilled, as does a more ferocious gap posted between $19 and $14 in October 2015.

The monthly stochastics oscillator entered a sell cycle in October 2016, reaching the oversold level in May 2017. A bullish crossover signaled a buy cycle two months later, but the rally failed, dropping the indicator to the lowest low since 2015. While this normally acts as a contrary signal that favors bullish energy, the prior failure may have depleted limited buying interest, lowering the odds that the stock can dig out of its deep hole any time in the near future.

P Short-Term Chart (2016 – 2018)

The stock sold off to the January 2016 low in June 2017 and bounced into August. It returned to the low again in October, completing a breakdown that ended at $4.44 in November. The subsequent bounce failed to reach the bottom of the gap, stalling at $5.40. Two lower highs exhausted bull power into 2018, generating a secondary breakdown that hit an all-time low at $4.09 on Jan. 22.

This week's earnings report triggered an initial pop to resistance at $5.40, followed by a modest pullback to $5.10. It is instructive that the first wave of buying power failed to pierce the big gap, lowering the odds that it will happen during the regular session. Even so, shareholders have little to fear until price breaks the Feb. 9 low at $4.43 because that violation would then favor a trip to new lows. (For more, see: Pandora Launches an On-Demand Music Service.)

The Bottom Line

Pandora Media has bounced into the upper half of the three-month trading range after earnings but appears unlikely to challenge major resistance between $5.50 and $7.00. Bears will likely remain in control until that price zone is mounted, raising the specter of new all-time lows. (For additional reading, check out: How Pandora and Spotify Pay Artists.)

<Disclosure: The author held no positions in aforementioned securities at the time of publication.>