A growing audience does not automatically lead to increasing share values for digital radio stocks. At least that’s been the experience of Pandora Media (P). Estimates from the ratings service Triton Digital indicate that Pandora’s audience has grown by 6% in the last quarter, yet the company’s share value has been falling in recent weeks.

These estimates indicate an increased leveraged value for Pandora because the biggest increase in listenership came in the 18 to 49-year-old demographic that advertisers like best. Pandora has been trying to increase its cash flow by selling advertising. Such a change in advertising should lead to increased revenues and leveraged profits in the long run, right?

Not according to the market, which seems to be ignoring Pandora’s reports of growth. By August 1st, 2012, Pandora had fallen to a price of $9.48 a share at the close of business. The stock lost 3.95% of its value or 39¢ on Friday, July 27 alone. This fall took place a full two weeks after Pandora tried to spread the good news about its increasing appeal to the advertisers’ favorite demographic.

It is not hard to blame the market for not taking Pandora’s claims about being able to make money seriously. Bloomberg Businessweek reported that the company lost $20 million during the first quarter of 2012 alone.

Music Royalties Payments Eating up Pandora’s Revenue

The reason Pandora is losing money is a simple one: its costs simply exceed its revenue. The company has to pay royalties to musicians and music companies every time it runs a song. To continue reading, click here.