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Pandora Isn't Afraid of Apple

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Pandora (NYSE: P  ) reports quarterly results tomorrow, and the market is generally excited.

Shares of the leading music streaming service hit a two-year high yesterday, and a couple of analysts have issued bullish reports in recent days. Those pros don't wax optimistic with a quarterly report around the corner unless they're comfortable that the dot-com darling can come through with a strong performance. They see Pandora returning to profitability on a 54% top-line pop.

Everything seems to be going well for Pandora, but things are far from perfect. Growth is decelerating, the average user is listening less, and then we have Apple (NASDAQ: AAPL  ) crashing the party.

We're now just weeks away from the inevitable rollout of iTunes Radio, and Apple's starting to generate some buzz.

Ad Age is covering the major advertisers that are hopping onto Apple's platform ahead of its launch next month. Mickey D's, Pepsi, and other major brands are paying in the "high single-digit millions of dollars to tens of millions of dollars" for a 12-month campaign that will feature industry exclusivity for the sponsors through the end of 2013.

According to the sources, users will have to put up with an audio ad every 15 minutes, and a video ad every hour. There will also be "slate" interactive display ads that take over the screen.

Apple does offer a cheaper path for listeners to have an ad-free experience, but it's now becoming clear why the arrival of iTunes Radio may be the best thing that ever happened to Pandora. 

Pandora may have served a whopping 1.28 billion hours of content to 71.2 million active users last month, but it has lost money through the first half of the year because it's not making enough from advertisers to offset its growing royalties and operating costs. Apple's arrival validates music streaming as a marketing platform, and it won't be a surprise to find brands paying far more to reach Pandora's larger base in the future. 

Another point to warm the hearts of Pandora bulls is that Apple's hoping that introducing iTunes Radio will help breathe new life into stagnant digital music sales. It may be too late for that -- we've become a nation of streamers -- but if that works for Apple, it follows that Pandora will also stand to benefit. In short, Apple is educating marketers and consumers, getting sponsors to pay more, and listeners to spend more. 

If that's the case on either front, iTunes Radio may be the best thing to happen to Pandora since the smartphone.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 21, 2013, at 6:17 PM, Cuftbll wrote:

    So you don't think that Apple is going to have any impact on Pandora?!? iTunes has over 500 million accounts that all will now have seamless access to iTunes radio. Give me a break!

    Let me see. Pandora walks in to mcDs office or Apple walks in to mcDs office. Only one is walking out with the ad contract. It ain't Pandora.

  • Report this Comment On August 21, 2013, at 8:37 PM, Bgraham55 wrote:

    If pandora is not scared they should be. I have a paid pandora subscription I am going to drop for apple. I didn't think iTunes Match was a great value, but add in commercial free radio and it is. Apple does not need to make money here, just not lose money. I have disliked 100+ live tracks on pandora and still get 10-15% live tracks from pandora. I love Sheryl Crow, but I don't want to listen to her talk to a crowd, I want music. looking forward to iTunes radio.

  • Report this Comment On August 22, 2013, at 5:39 AM, vulcan747 wrote:

    This has to be the most vivid example of the American idiom:

    "whistling while walking past a grave yard"

    or "Faking a cheerful front. Trying to smother some fear"

    Rick - at least you made us laugh at your preposterous claim. NOW go to DETOX!

    Rest in peace Pandora.

  • Report this Comment On August 22, 2013, at 9:40 AM, hiddenflem wrote:

    What's in Pandora's box? I see toast.

  • Report this Comment On August 22, 2013, at 10:44 AM, travelsfo wrote:

    LOL, lest we forget what the FOOL said less than 60 days ago:

  • Report this Comment On August 22, 2013, at 11:08 AM, larryw101 wrote:

    This author, Rick M, is absolutely clueless about Apple. Moreover, he has written no fewer than 20 recent articles ALL bashing Apple. Yet he claims he has no position in the stock. Worse yet, he's way off center from his claims. Apple has risen over 20% in the past 60 days and you mean to tell me that this guy can't find one good thing to say about Apple?

    In my opinion, Motley Fool has sunk to even lower levels allowing this bozo to continue to write for them.

    Come on Motley, can't you see the discredit this guy is causing you? MF used to be a good source of unbiased investment journalism. Not anymore.

    I hope this clown is happy with his penny a hit that he gets for people clicking on to his garbage.

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