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By Neal Rau

Pandora Media Inc. (P) has been riding a wave of upgrades recently and as a result investors have seen the stock has more than double year to date. Pandora expects to be profitable this fiscal year and believes that more than 30% of cars sold in the U.S. will have Pandora radios. As the company prepares to report earnings Thursday after the bell, the stock is sitting near long-term resistance, so should investors be buying or selling ahead of earnings?

The majority of Pandora users access the service from mobile devices, much like Facebook (NASDAQ:FB) users do. Mobile advertising is just as important to Pandora as it was to Facebook, who just reported blow-out earnings ignited by booming mobile ad revenue. Similar to Facebook, Pandora has a pretty good idea who it is targeting with its mobile ads because Pandora users all register their location, age and sex when they sign up. I was listening to the free Pandora service recently, and as I heard an ad I noticed I drove right by the business that was being advertised. I probably would not have noticed but since it was a business that was of interest to me, so it made me aware. If I have to listen to ads because I don't want to pay the $4 a month, at least most of them will be of interest to me.

Pandora must continue to find innovative ways to make profits because the company is losing a lot of money, last year it posted a net loss of about $38 million. Royalty payments continue to be one of the biggest hurdles for the company, so Pandora has been searching for ways to reduce its royalty payments, which must be paid every time a song is played over its service. In March, Pandora capped mobile listening hours to 40 hours a month for free subscribers, the company stated only about 4% of users listened more than 40 hours a month and capping hours could help manage escalating costs with minimal disruption to listeners. Pandora also increased advertising to offset the cap on mobile listening hours, and saw an increase in paid subscribers as a result of the cap. Keep in mind, a closely watched metric when the company reports will be mobile RPM (revenue per 1000 listening hours).

Managing Pandora's growth seems to be as important as the growth itself, at one point the mobile growth was at a higher rate than Pandora could sell ads. With that said, one of the biggest catalysts for a boost in revenues this quarter could be the investment the company has made it its sales force. Pandora now has 29 sales offices in major markets such as Chicago, New York, and Los Angeles, and plans more this year. However, growth may be harder to come by after Apple Inc. (AAPL) launches iTunes Radio later this year. Pandora has about 1 million songs in its library, iTunes Radio will have the entire iTunes catalog of over 26 million songs and a subscription cost that is less than Pandora.

If Pandora has the formula correct, which you won't know until after they report on Thursday, it could be the blow-out type of quarter that breaks the stock above resistance. We have P strong long-term and currently testing long-term resistance. Any disappointment in earnings or a "sell on the news" type of reaction could result in the stock falling all the way back down to long-term support. Investors holding big gains might want to consider taking some off the table.

Source: Ahead Of Earnings: Pandora At Resistance