Are You Missing Pandora's Potential?

It's been a rough ride for Pandora Media, (NYSE: P  ) . Shares of the streaming music provider have lost 30% of their value in just the past four months. The company has been under a barrage of criticism and bearish sentiment. As the critics contend, it's only a matter of time before technology giant Apple (NASDAQ: AAPL  ) crushes Pandora. After all, Apple is a huge company with the financial wherewithal to do just about anything it wants. Apple has launched its own radio service, and combined with its high-profile takeover of Beats Electronics, Pandora is taking a lot of heat.

But Apple's iRadio service has been available for some time, and it's simply not been able to topple Pandora. It's true that Apple is likely gearing up for a major revamp of iRadio, but there's no guarantee it will tackle Pandora, which is a highly popular service. Even though Pandora shares are crumbing under the weight of constant attacks, it's growing like a weed and dominates the business.

Here's why rumors of Pandora's demise may be greatly exaggerated.

Pandora still leads the pack in streaming
Pandora's growth is actually accelerating, all while its stock price collapses. That's a curious situation that signifies to me the market is fully expecting Apple to eat Pandora's lunch. But that's far from a foregone conclusion. Until then, what's left is Pandora's tantalizing growth.

Pandora produced 69% revenue growth last quarter. This represents accelerating growth versus the prior quarter, in which revenue increased 52%. It's simply a mistake to think that Pandora is slowing down.

Importantly, Pandora is nailing it in mobile. Consumers are increasingly utilizing music on their phones and other mobile devices, and Pandora isn't getting left behind. Its mobile revenue now accounts for three-quarters of its total revenue, and its mobile business is gaining momentum. Revenue from mobile nearly doubled last quarter.

And, Pandora's loss is shrinking. Last quarter, the company lost $0.14 per share. This represented a huge 36% year-over-year improvement. Pandora lost $0.22 per share in the same quarter last year. Even better, Pandora expects to turn a profit this year. At the midpoint of its forecast, management projects $0.16 per share this year, up from its previous expectations. This would represent an important milestone and more than double the profit generated last year.

There's a great deal of hype surrounding Apple's $3 billion purchase of Beats Electronics. But while everyone is jumping to the conclusion that the deal is a Pandora killer, that seems far-fetched. If Apple wants to be taken seriously in streaming, acquiring Beats probably isn't going to do it. Beats' recently launched streaming service holds just 200,000 subscribers. Meanwhile, Pandora is still the leader with more than 75 million active listeners.

Apple can't crack Pandora's armor
Try as it may, Apple's iRadio isn't making a dent in Pandora's listener base. Those that use Pandora clearly enjoy the service, and Apple's iRadio has done virtually nothing so far. Of course, now that Beats co-founders Dr. Dre and Jimmy Iovine are in-house employees, it's likely that Apple will make another full-fledged assault on Pandora. But there's little that suggests Apple is about to take over the music streaming business.

Apple's iTunes is in trouble. The company generated 11% revenue growth from iTunes last quarter, but most of that was due to the App Store. Digging deeper reveals that sales of digital music from iTunes actually declined last quarter. As a result, it seems that Apple has a problem on its hands when it comes to music.

Some final Foolish thoughts
As analysts and the financial media obsess over Apple's highly publicized acquisition of Beats Electronics, Pandora investors have rushed for the exits. Shares of Pandora are down considerably from their 52-week highs, as a sense of panic ensues about the possibility of Apple taking over the music streaming business.

But based on everything available so far, there's little evidence of this. Apple's giant iTunes service is actually weakening, and its iRadio streaming service has done virtually nothing. It goes without saying Apple isn't going to just walk away. With Beats, Apple will likely try again to destroy Pandora. Meanwhile, Pandora simply continues to rack up additional users and generate impressive growth.

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