Is Pandora Media's Competitive Advantage Eroding?

About a year after Apple announced iTunes Radio, the much touted "Pandora killer" may be coming to Android, a serious challenge to Pandora's market share. Yet despite Apple-caused stock declines, Pandora's stock still climbed, but has its reckoning finally come?

Apr 2, 2014 at 7:30PM

For the longest time, Pandora (NYSE:P) was the only player in the still evolving music streaming market. Offering a custom playlist based on your favorite music, it was the newest development in mobile music.

Then, in the summer of 2013, tech titan Apple (NASDAQ:AAPL) announced the new iTunes Radio, a competing service that was billed as the Pandora killer. Investors took note, and rewarding Apple stock while (temporarily) punishing Pandora, thinking that Apple's clout with music producers and prowess with online music, would gobble up its lesser competition.

Yet Pandora survived that initial downturn, and responded by climbing to an all-time high of $40 per share this March. However, after an announcement for a fee increase for paid subscribers, and rumors of an iTunes Radio app for the Android, (Pandora's main market), the stock tumbled 25% in a month before the trend was reversed last week.

So does this mean midnight is on the horizon for Pandora? In short, is the the company's competitive advantage withering away? Let's see.

Will "first mover" help Pandora?
One of Pandora's enduring strengths was its first-mover advantage in the business. Before Spotify, it was the main company for free customized music streaming. By having success monetizing the app with advertising, the company was able to generate serious revenue on the back of the huge Android customer base. I theorized last summer that this gave Pandora its own ecosystem that wouldn't bolt for Apple if there wasn't enough of a difference between the two programs, and would preserve Pandora's profitability and market share.

However, Apple is no other competitor. It carries a larger ecosystem where people go to Apple for just about every technological need. Adding iTunes Radio means it taps into that loyal ecosystem directly, and has a larger music cache than Pandora has, making for more customizable listening.

As for the first-mover problem, iTunes Radio logged 11 million unique visitors in the first five days of availability, five times more than Rhapsody had during the same time frame when it launched in 2001. Even though Apple touted this in September 2013 as a shot across Pandora's bow, sending their Apple-sensitive share price down, it was nevertheless an apples-to-oranges comparison (12 years is an eternity in technology).

Android market safe -- for now
Pandora though is still safe in the Android sphere, which is a larger potential customer base. If the rumors of an Android move are true for iTunes Radio, then you have a right to be concerned. In the meantime, Pandora may be a good buy. It is trending below its 10 and 50-day SMA, and the slide has been halted . Given its recent history of bouncing back after Apple caused bad news, there is a chance for a decent profit.

But caution should be urged. An Android move won't be just a warning shot. It will be a shot right at Pandora's sails, with dominance of the seas of music streaming gleaming ever brighter in Tim Cook's eye.

The sad thing for Pandora, this isn't even Apple's biggest thing!
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John McKenna has no position in any stocks mentioned. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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