Online streaming music service Pandora Media Inc reported a rise in total revenue on strong advertising sales, beating expectations.

The company said on Tuesday that, for the third quarter ending October, revenue rose 99 percent to $75 million, beating analysts' expectations of $71.4 million, according to Thomson Reuters I/B/E/S.

Adjusted EPS of 2 cents per share also beat analysts' forecast of a loss of penny.

Investors though sent the company's shares down 3.8 percent in after hours trading, after they closed down 5.3 percent at $11.85.

It's an expensive stock, said Stifel, Nicolaus & Co analyst Jordan Rohan. Any time the company offers in line guidance, it trades down.

Pandora expects revenue in the fourth quarter ending January 2012 to be in the range of $80 million to $84 million. Analysts are forecasting $82.3 million.

They had an excellent quarter, but offered some conservative guidance, said Rohan.

Media companies that are largely dependent on advertising are being carefully watched for cues that the economy is taking a turn for the worse. During down times, advertisers slash budgets.

During a conference call with analysts, Pandora executives said they are taking a responsible approach to their fourth quarter revenue guidance.

There's no impact at the moment, but we are paying close attention to what's going on in the marketplace, said Pandora CFO Steve Cakebread during the call.

Advertising revenue, which represents the majority of total revenue, advanced 102 percent to $66 million during the third quarter.

Pandora, first known as SavageBeast, has been around for a decade. It runs a mostly free service that recommends different songs based on listener's playlists.

While Pandora has been in the marketplace for some time, it faces competition on all flanks from traditional radio companies such as Clear Channel, which launched its own customized online streaming service, satellite radio providers such as Sirius XM Radio Inc, as well as Spotify, which allows users to integrate its streaming music through Facebook.

Pandora has about 40 million active users and its share of the U.S. Internet radio market is 66 percent, up from 53 percent during the same quarter last year.

In recent months, Pandora struck a deal to pipe music into businesses such as doctor offices and auto dealerships through a partnership with DMX. It also plans to offer targeted political ads for the 2012 campaign season.

For a relatively young company they are doing everything perfectly, said Michael Pachter, an analyst with Wedbush Securities.

One concern for the company, which went public in June, is the more users it attracts, the more it must pay record labels in licensing fees.

Content acquisition costs more than doubled to $37.6 million during the third quarter.

(Reporting by Jennifer Saba; editing by Carol Bishopric and Andre Grenon)