* Q4 revenue expected between $120 mln to $123 mln; below Street view
* CEO says advertisers are being prudent; Shares dive on outlook
* Q3 revenue rose on strong mobile revenue (Adds more executive comments from call, context)
Dec 4 (Reuters) - Pandora Media Inc lowered its fourth quarter guidance because advertisers, spooked by the looming fiscal cliff, have pulled back on spending.
The outlook on Tuesday rattled investors, sending Pandora shares tumbling 20 percent in after-hours trade, as the company had been steadily increasing its revenue. Last quarter, for instance, it raised its outlook.
The online streaming music service said that it expects fourth quarter revenue of $120 million to $123 million. Analysts were expecting revenue of $130.3 million, according to Thomson Reuters I/B/E/S.
Pandora Chief Executive Joe Kennedy said advertisers are being prudent, a change that occurred over the last couple months.
"We are reflecting the caution we are seeing," Kennedy said in an interview with Reuters about the lowered forecast. "I think advertisers are nervous."
U.S. legislators are trying to hash out a deal to avoid a $600 billion package of tax hikes and federal spending cuts that would begin on Jan. 1 and could tip the economy into a recession.
Pandora's fiscal fourth quarter ends Jan. 31, which is why the fiscal cliff figures into its forecast, Kennedy said.
Pandora relies mainly on advertising for revenue and has been building out its local sales staff in an effort to compete and gain market share among its competitors.
January is typically a lighter month for Pandora and is hard to pinpoint spending from advertisers coming off the holiday season.
On a call with analysts, Kennedy said that a general uncertainty in the economy exacerbated by fears that legislators won't come to some agreement was responsible for the lower forecast.
"(The caution) is significant across many of the advertisers we work with," he said in response to a question if specific advertisers were pulling back on spending versus others.
Still, for the third quarter, Pandora reported better-than-expected revenue, up 60 percent to $120 million on strong mobile revenue.
Pandora said mobile revenue, an important metric, rose 112 percent to $73.9 million for the third quarter.
The company reported adjusted earnings per share of 5 cents in the third quarter ending October, beating analysts' expectations of a penny.
Shares of Pandora Media closed up 5.4 percent at $9.45 but shed 20 percent after the results were released. (Reporting By Jennifer Saba in New York; Editing by Bernard Orr)