Tuesday, September 08, 2015

Does Early Success of Apple Music Spell Doom for Pandora Stock?

AAPL is repeating its pattern of entering new markets and rising to the top

Apple (AAPL) recently revealed some powerful statistics about the Apple Music service, which debuted at the end of June. After just two months, Apple Music boasts a user base of more than 11 million, and comScore ranked it as the 14th most popular smartphone app in July.

Considering the newness of Apple Music and the fact that there are already a number of other popular music apps for both Android and iOS, the meteoric rise of Apple Music is impressive — and also potentially threatening to the current king of the streaming music industry, Pandora (P).

Over the course of its four-year history, Pandora stock rose to an all-time high near $38, but has since experienced a steady decline. Pandora is down 30% for the past 52 weeks, and with Apple Music already making headlines, the future for P stock isn’t looking too healthy.

Apple Music Advantages


Management admitted that there’s still a lot of work to be done on Apple Music, but the 11 million people who signed up for the three-month trial represent only a fraction of the AAPL user base, which comScore reported was 44% of the U.S. smartphone market in July.

So, last quarter, Pandora reported its user base at around 80 million, while in its first two months Apple has attracted more than 11 million people. Granted, Apple Music takes advantage of a massive captive audience, but that’s part of what makes Apple Music so dangerous for Pandora.

What’s even more threatening to P stock is the fact that Apple Music hasn’t even debuted on Android yet. Still, even if a majority of Android smartphone owners pass on the new AAPL service, there remains a plethora of iPhone owners who have yet to sign up for Apple Music.

Pandora Stock May Be In Trouble


Even before the introduction of Apple Music, there was trouble brewing for Pandora stock as other tech titans released their own streaming music apps. The arena got more crowded, and Pandora’s stranglehold on the industry began to weaken as consumers opted for alternative streaming music from Google (GOOGL, GOOG), Amazon (AMZN) and Spotify.

In the short term, because Apple Music is the latest AAPL offering and the buzz remains both loud and constant, Pandora is likely to see an even larger slowdown in growth of its listener base — and revenue — for at least the next few months.

However, as the three-month trial periods begin to expire and while developers continue to work out bugs in the service, Pandora might see listener statistics rebound slightly when the casual listeners are forced to pay a monthly subscription to continue using Apple Music.

The real danger for Pandora will be when AAPL developers finally iron out all the kinks in the Apple Music service. Management openly stated that the company is less concerned with the short-term success of the new service and is instead focused on the long-term perspective.

When AAPL eventually re-creates or redesigns the most advantageous and desirable features of a streaming radio service and pairs them with its own blend of Apple perks and benefits, the likelihood of Pandora maintaining its spot at the top of the streaming music pyramid will be all but nonexistent.

Bottom Line on Apple Music


Sticking to its all-too-well-known modus operandi of entering a new industry and disrupting — nay, obliterating — current market leaders, AAPL already looks to be a threat to the longtime music streaming king, Pandora.

The Apple Music service isn’t perfect, but it’s only a matter of time until the bugs are worked out. Pandora, meanwhile, has been struggling to maintain its user growth in the face of increased competition and steadily declining P stock shares.

For now, Pandora retains the title of the most popular smartphone music streaming service. However, if AAPL management is able to improve on the overall listening experience with new features and capabilities for Apple Music that are both functional and fun, that’s when it might be time to bail on Pandora stock.

Article originally appeared on InvestorPlace (09/08/2015)