Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Should Pandora Worry as iTunes Radio Soars?

Less than a week after Apple's (NASDAQ: AAPL  ) new iTunes Radio went live on Sept. 18 with the release of iOS 7, the company reports the service already boasts 11 million unique listeners.

Should Pandora (NYSE: P  )  be worried? Definitely.

iTunes Radio. Source: Apple.

How many listeners did Pandora lose to Apple?
That seems to be the question of the day for Pandora investors. The stock plummeted today on the news of Apple's success in streaming radio. In just a few days, Apple has acquired an audience one-sixth the size of Pandora's 72.1 million active listeners. Gathering 11 million users in a few days is a large enough number in a short enough time to merit serious concern. Will this epic growth continue? How many of these listeners could be ditching Pandora?

And here is where the concern really starts to get serious: What if Pandora's growth story comes to a sudden halt? Slipping by on a slim profit with EPS of just $0.04 in Pandora's most recent quarter, the company's $24 share price certainly has future growth priced into the stock.

But is it realistic to expect Pandora to be able to grow its numbers going forward? While Apple added 11 million unique listeners in a few days, Pandora added just 16 million active listeners over the last 12 months.

And unlike Pandora, Apple has an existing ecosystem from which it can draw from, with already 200 million iOS devices running iOS 7. Assuming Apple could convince just 40% of those 200 million users to use iTunes Radio, that would already give Apple a larger listener base (80 million) than Pandora.

But even that estimate may be conservative. First of all, given the record adoption of iOS 7, its reasonable to assume Apple will likely eventually match its iOS 6 penetration of 93%. This would give the company a considerably larger pool to draw from. Second, Apple said this summer that the company has 575 million iTunes Store accounts linked to credit cards. This makes 80 million iTunes Radio listeners, especially after the company landed 11 million active listeners in a few days, seem like a very conservative estimate. If Apple eventually convinced 40% of users with an iTunes Store account to use iTunes Radio, the company would boast more than three times Pandora's current base of active listeners.

Pandora's response
Responding to the official announcement of iTunes Radio, the company seemed to show little concern for Apple's upcoming service. Though Pandora has recently said it will remove its 40-hour listening limit for free users, and it redesigned its iOS app last week, these actions may not be enough to thwart Apple's competition.

Fortunately, Pandora has a wave of increasing use of streaming radio working in its favor. But will Apple steal away current users' listening time faster than Pandora can gain new listeners? Sure, consumers can use both services -- but listeners will not be listening to both services at the same time. So there's a good chance a meaningful portion of Apple's new listeners will come at the direct expense of Pandora.

Making matters worse, iTunes Radio (along with an iTunes Match subscription) costs just $25 per year, compared to Pandora at $36, making the former an arguably a better value to consumers. Today's announcement from Apple only reinforces the fact that Pandora is a speculative investment at today's prices.

Could Apple have an entirely new product in the works?
Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

Read/Post Comments (3) | Recommend This Article (1)

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 September 23, 2013, at 7:40 PM, Jason91789 wrote:

    This is just the beginning more Apple listener will be tuning in. Pandora investor are never worry even if Pandora offer more share to the market. All you bulls should buy more share of the stock at the DIP.

  • Report this Comment On September 24, 2013, at 12:08 AM, sonofamram wrote:

    11 million unique listeners is not the same as 11 million acitive users. I clicked on iTunes radio on my device (accidentally) because Apple co-opted the music icon for their new service. I activated it out of curiosity. I was not impressed and have no plans to cancel my Pandora subscription.

  • Report this Comment On September 24, 2013, at 9:41 AM, DFCAMF1216 wrote:

    11 million out of 200 million IOS 7 updates? 5%? That's impressive? How many people clicked to try their new toy? Let's see how many NEW people came in the market and how many go to the leader - Pandora. And like sonfamram said above, how many actually listened. Pandora has over 200 million unique listeners. 11 million means nothing.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2649855, ~/Articles/ArticleHandler.aspx, 9/25/2016 6:47:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:02 PM
P $14.09 Up +0.08 +0.57%
Pandora Media CAPS Rating: **
AAPL $112.71 Down -1.91 -1.67%
Apple CAPS Rating: ****