Is Apple A Long Term Threat To Pandora?

  • Pandora recently announced its Q3 2014 results, beating analyst consensus estimates on both topline and bottomline.
  • Other user metrics and operating metrics came in-line or ahead of expectations.
  • While competition from can pose a serious threat, Pandora’s focus on the automobile sector could lead to growth in revenue and earnings.
pandora threat from Apple

The year 2014 has not been a good one for investors who bought shares of Pandora Media (NYSE:P) in March and still own them as the calendar year comes to an end. On March 5, 2014, the streaming music service was flying high with a share price of $39.43. Eight-months later, on November 5, 2014, the stock was trading at less than half that price, or $18.37 per share. What happened? Has the bright sparkle of the once dominant online streaming music service faded forever? Is it possible that management can refocus and restore the shine?

Pandora Earnings

Pandora earnings and other financial results for Q3 2014 (period ending September 30) were not too bad. As the declining price trend accelerated after Pandora earnings were reported, analysts continued to remain mostly positive on the future prospects for the streaming music company. For the most part, they met, or did somewhat better than, analyst expectations.

  • After third-quarter results came out, RBC Capital maintained its "outperform" rating and kept its price target for Pandora Media at $35.00
  • Sun Trust reaffirmed its "buy" rating, but lowered its target price from $34.00 to $30.00 per share.
  • A summary of the opinions of 32 analysts who follow Pandora Media (after earnings were reported) showed that 24, or 75 percent of the analysts had either a "strong buy" or "buy" recommendation and that only one analyst had a "sell" recommendation.

Pandora Revenue

Total revenue in Q3 2014 was $239.6 million which represented year-over-year non-GAAP growth of 40 percent. The company beat consensus analyst estimate of $236 million in revenue. Non-GAAP earnings per share came in at a penny above analyst estimates at $0.09 and Pandora also enjoyed y-o-y growth of 50 percent in mobile revenue. The share of total radio listeners who listened to Pandora in 2014 grew to 9.06%, up from the 7.77% in the corresponding period of 2013.

P Revenue chart
Source: Pandora revenue data by Amigobulls

Outlook for Pandora

Pandora was created back in 2000 but has only been listed on the NYSE since June of 2011. Pandora quickly grew to become the dominant online music streaming service provider. Today there are some 76.5 million active users, more than 250 million registered users, and Pandora has a 70 percent market share of the digital music streaming market. The stock fell after earnings were announced because investors are worried about Pandora's ability to attract new users. Competition in the streaming music and radio space is fierce with players like Spotify which is set to IPO next year, iHeart, and Soundcloud all competing for market share. Even Google with its Songza acquisition has entered streaming music. However its Apple, with its recent acquisition of Beats, along with iTunes, which may present the biggest threat to Pandora's future.

Competition from Apple

Apple is one of the largest corporations on the globe and whenever it makes a move it sends ripples throughout the entire world. Apple has a huge amount of cash that it can deploy to rapidly acquire new listeners and they could conceivably purchase competitors, including Pandora. Threat from Apple's iTunes could become a big problem for Pandora. The management at Pandora needs to execute its plans and remain focused on its mission to provide music people love to listen to at a price they can afford to pay.

Pandora is not sitting idle while the competition intensifies. While they are still doing what they can to improve the number of listeners on mobile phones and other electronic devices, Pandora's focus on automobile industry may turn out to be lucrative. According to some analysts, having a strong presence in automobiles can enhance annual Pandora revenue by more than $1 billion.

Maintaining relevance in the technology space is crucial for long-term success. For many years, Microsoft's stock price remained flat as investors saw more exciting opportunities in companies like Google and Amazon. Just ask the CEOs of IBM and Blackberry about the importance of being on the leading edge of technology. Most analysts believe that management at Pandora Media has what it takes to get the company back on course for future growth and prosperity. With a price now near the IPO price, this once high-flying stock is now on sale. If you believe that the future of music is in streaming radio, you should buy Pandora Media. However, given the huge valuations and unproven ability to generate profits, the risks of investing are high too. Our Pandora stock analysis highlights the risks of owning Pandora stock.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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