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Pandora's Drop in Listener Hours: Not a Big Deal

Tickers in this article: P
NEW YORK (TheStreet) -- The stock took a hit. Media hacks wrote lazy headlines and provided their usual thin and poor excuses for analysis.

Pandora announced audience metrics for June 2013, which are up year-over-year, but down month-to-month.

For instance, overall listener hours came in at 1.25 billion for June 2013, a 17-percent increase from 2012, but that's off from May 2013's 1.35 billion hour total. Pandora's overall share of radio listening also decreased between May and June, dropping modestly from 7.29 percent to 7.04 percent.

So people freaked out. But not me. I saw it coming. I expected it.

Jim Cramer often talks about the importance of doing your homework. And that's precisely what I have been doing for the last year or two on Pandora. When you do your homework, it's easy to remain not only calm, cool and collected, but confident in your long-term thesis about a company.

"Homework" I did in January 2012 illustrates why I expected some of Pandora's metrics to moderate. It came as part of ongoing conversations I had with the company's then-CFO Steve Cakebread, published, in part, at Seeking Alpha:

... over time, the number of listeners and hours listened will hit a certain level and sustain, slowing and, ultimately, stopping the growth of royalty payments. As Cakebread put it, they're not going to keep growing to 100% market share.

Therefore, this pause in growth should benefit the company on the cost side of the equation. Of course, that's been the major point of hysteria ever since Pandora went public. Now, with the usual inanity, the hysteria shifts over to concerns over growth.

But, clearly, it's part of the model. The company anticipated it. Even predicted it. So why worry? There's no reason to. As the royalty situation works itself out -- as I explain in an article based on my talk with ASCAP's Paul Williams -- Pandora should enter a new phase of growth, which will be, most likely, much more modest than this explosive and what felt like a never-ending recent phase.

A little homework goes a long way.

--Written by Rocco Pendola in New York City

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