Pandora Stock Takes a Beating on Apple-Radio Rumor
Sep 8, 2012 5:00 AM PT
Pandora Media's stock dropped precipitously on news that Apple might be entering the online streaming-radio space with a competing product.
The news is not official: It has been reported in The Wall Street Journal and The New York Times, based on information leaked by unnamed sources. Still, the service would nicely complement Apple's existing iTunes offerings, making the rumor believable enough to send Pandora's stock plummeting by some 18 percent to as low as US$10.27 per share during trading Friday. It closed at $10.47.
The Rare Internet Success Story
If Apple is in fact preparing to roll out its own service, it could flatten one of the few Internet stock offerings of 2011 that turned out to be a success. With 54.9 million active users, Pandora has managed to best competing service providers since its inception, and its most recent earnings were better than expected.
Indeed, Pandora may wind up being a victim of its own success. At the time it went public, in June 2011, Apple noted that it was the most frequently downloaded free iPad app.
Based on the descriptions of the service Apple is apparently considering, there will be little to distinguish Pandora from the tech conglomerate's offering. Like Pandora, Apple is reportedly planning a service that would send streams of music customized to users' tastes.
An Alternative Scenario
"Certainly Apple being in the market would hurt Pandora on Apple devices, and given how widely used iTunes is could provide additional problems," Rob Enderle, principal analyst with the Enderle Group, told the E-Commerce Times.
There are additional factors to consider, though, he added -- factors that could mean Pandora's ability to survive if not continue to thrive.
For starters, Apple has historically been comparatively weak with cloud services. Then there are Pandora's customers, who have proven to be a loyal base, given the wealth of additional options on the market: Slacker, iHeartRadio, Spotify and Rhapsody, to name a few.
They will likely stick with Pandora, Enderle, said, if only because its service works across more devices.
Also, "folks really don't like to switch from a service they know and like," he added.
Timing Is Everything
Then there is this to consider: When, exactly, will Apple launch this service? As it happens, there have been rumors of such an offering before, noted Rob Walch, host of Today in iOS -- but never in such credible publications as the Journal and the Times.
"The way they read, it almost sounded like an Apple leak," he told the E-Commerce Times. "Otherwise, I would have read it and thought 'just another Apple rumor.'"
Still, the tone of the comments suggests that whatever Apple may be up to is still in the beginning stages, Walch observed.
"Until Tim Cook gets up on a stage and introduces the service," he added, "I am not expecting it to be in the market any time soon."
Apple had an opportunity in the past to explore such a service and rejected it, Enderle pointed out.
When Zune brought a music subscription service to the market, Jobs said the approach was stupid, he recalled.
"Now that Zune is gone, Apple is suddenly exploring subscription services -- likely because of the very real risk Amazon represents," Enderle said, adding that it was another case of Microsoft having the right idea but being unable to execute well first.
Apple and Pandora did not respond to our requests to comment for this story.