An activist hedge fund revealed it owns nearly 10 percent of Pandora and called for the sale of the Internet radio service.

Corvex Management managing partner Keith Meister said in a letter to the Pandora board that his fund holds about 22.7 million shares, making it the Oakland-based company's largest shareholder with a stake of 9.9 percent.

"We have become increasingly concerned that the company may be pursuing a costly and uncertain business plan," Meister said in the letter, a copy of which was filed with the Securities and Exchange Commission and available online.

"Let us be clear -- It remains our firm belief that the company should immediately explore the potential value to shareholders that could be realized in a sale transaction."

Meister, who once worked closely with activist investor Carl Icahn, expressed "frustration" with Pandora's stock performance and argued that the company has been unable "to translate a great product into a great business."

He argued that Pandora would have strong value as part of a larger operation, instead of as a stand-alone service.

Pandora shares were up 3.51 percent to $10.33 in after market trades on the New York Stock Exchange. Pandora had explored sale of the company earlier this year, according to US media reports.

- Founder as front man -

Co-founder Tim Westergren returned in March as chief executive failed to ignite confidence in Pandora's long-term prospects. 

Westergren helped found the Internet radio service in the early 2000s and served as chief executive from 2002 to 2004.

"Tim carries the vision for how Pandora can transform the music industry and he is uniquely able to connect with listeners, music makers and employees," Pandora chairman Jim Feuille said at the time.

Pandora shares have come under pressure as rivals such as Apple and Spotify have built up significant Internet music businesses. In 2015, Pandora reported a loss of $169.7 million.

Westergren, a musician and composer who worked in the music industry for more than 20 years, helped launch Pandora's Music Genome Project, which suggests new music selections to consumers based on their taste.

The service caught on, enabling Pandora to go public in 2011 with more than 80 million registered users. Pandora has not reported a profit since going public.

Shares fell steeply over the last two years as competition intensified. 

Faced with slowing growth, the company unveiled a plan of heavy investment to ramp up its on-demand service, expand its event ticketing operations and build a bigger international presence.

The company in February said these initiatives would allow it to notch $4 billion in annual revenues within five years, compared with $1.2 billion in 2015.

"We find it difficult to reconcile Mr. Westergren’s idealism and music industry evangelism with the goal of maximizing risk-adjusted shareholder value and your responsibilities to investors," Meister said in the letter, which was addressed to Feuille.

"Simply put, we believe Pandora can become an even more differentiated product and a more valuable business as a part of a larger enterprise."