* Q4 revenue expected between $120 mln to $123 mln; below Street view
* CEO says advertisers are being prudent; Shares dive on outlook
* Some analysts point to increasing competition
* Q3 revenue rose on strong mobile revenue (Adds analysts comments, context)
By Jennifer Saba
Dec 4 (Reuters) - Pandora Media Inc lowered its fourth-quarter guidance, blaming a pull back by advertisers on the so-called looming fiscal cliff, but analysts suggested it was due more to increasing competition.
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.
Pandora relies mainly on advertising for revenue and has been building out its local sales staff in an effort to 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.
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.
One analyst questioned how much the fiscal cliff plays into the revised forecast versus the entry of online music companies including Spotify, Sirius XM Radio, and possibly Apple Inc, which are staking out Pandora's turf.
"I think the key issue here is that Pandora is facing increased competition in mobile," said Richard Greenfield, an analyst with BTIG.
"It's easy to just blame fiscal cliff. The shares fell because they are missing numbers."
Michael Pachter an analyst with Wedbush Securities said, "Essentially they are not getting as much advertising revenue as before."
Pachter added that he doubts advertisers are really snapping shut their purses because of the fiscal cliff.
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.
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.
For the past decade Pandora has been gaining market share as it become more popular. The company said that in November total listener hours pushed past 1 billion, an increase of 58 percent from the same period last year.
For the third quarter ending October, active users rose 47 percent to 59.2 million.
But as it attracts more listeners, Pandora has to pay more to license music.
The company is standing behind the Internet Radio Fairness Act, which would change how royalties are paid to artists. As of now, online streaming music companies like Pandora pay a different rate to license music than say traditional radio companies.
Pandora's sponsorship of the bill has been a flashpoint for the company and some of music's most notable names like Billy Joel and Rihanna are opposing the proposed change. .
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 and Liana Baker in New York; Editing by Peter Lauria and Bernard Orr)