Pandora Media (P) is one of the hottest stocks of the year, about to triple in price, as listeners and advertisers have flocked to its online radio service. This week, the stock shot up further to an all-time high, as strong investor demand let Pandora increase a secondary stock offering by 30%.
Early anecdotal signs indicate that iTunes Radio may be cutting into Pandora’s reported base of 72 million monthly active listeners.
After Apple made iOS 7 with the new radio feature available for download on Sept. 17, Twitter mentions of iTunes Radio shot up to almost 250 times their level a few days earlier, monitoring service Topsy says.
Most of the 400 million iPhones and iPads sold in the last two years will end up with the new iOS 7software. And a new version of the free iTunes program added the radio feature for Mac and Windows PC users.
Tweeters were extremely positive about iTunes Radio and many said they planned to switch from Pandora.
“iTunes Radio just seems more convenient,” says Fordham University junior Connor Ryan, one of the many tweeting about switching. Ryan, an iPhone owner who had used Pandora for a couple of years, says the new service makes it much easier to buy songs he likes. “I don't plan on using Pandora any more.”
Celebrities like Britney Spears and Miley Cyrus also got on board the iTunes bandwagon, as well.
A large portion of Pandora’s base comes from Apple product owners. About 42% of the 67 million people who actively used iTunes monthly are Pandora users, according to NPD. “You have a lot of overlap between the two franchises,” says Russ Crupnick, senior vice president at NPD.
The evidence from Twitter is admittedly anecdotal and stock market investors could not care less. In the afterglow of the successful 18.2 million-share secondary offering, they pushed Pandora shares up almost 7% on Thursday to an all-time high of $27.35.
“Apple is out of the gate now and we know what it is and it’s nothing special,” Wedge Partners analyst Martin Pyykkonen said, summing up the pro-Pandora consensus.
Both services work in a similar way. Listeners can’t choose exactly the songs they want to hear. Instead, they pick a “station” that’s based on a genre or artist they like. For free, both services include ads. Subscribers who pay Pandora $36 a year or people who buy Apple’s iTunes Match service for $25 go ad-free.
Beyond the lower price, Apple has at least two key advantages. Since Apple struck deals directly with the big music labels, its service includes 27 million songs. Pandora, which relies on mandatory licensing rules, has a library of just 1 million songs.
“Pandora often seems to get stuck on certain tracks or moods leading to the same tracks popping up fairly often,” says 40-year-old, part time DJ Michael Hanscom. “iTunes Radio seems, so far, to be doing a better job.”
Pandora counters that since 95% of its songs are played every month, it has a higher quality library. “We’re providing a deep breadth of artists with unmatched exposure while delivering each individual listener the best personalized radio experience,” a spokeswoman says.
Another iTunes advantage is that because many users have already paid $25 for iTunes Match, the new radio service starts off commercial-free immediately. The users may not even realize that they paid anything to get rid of the commercials.
Pandora isn’t standing still. The secondary offering raised a $325 million war chest that could be used on acquisitions, additional marketing or licensing more music. Selling shareholders got another $130 million.
Pandora this week also overhauled their iPad software, adding new features to help people post on Facebook (FB) and Twitter and buy song tracks directly from iTunes. And they recently eliminated a limit of 40 hours of free listening per month on mobile devices.
Pandora also remains much more widely available. It’s on Android and BlackBerry (BBRY) devices, where Apple will likely never challenge. And, it’s included in many other devices like smart TV sets, DVD players, Roku and TiVo (TiVo) boxes, and table top radios. Pandora software is pre-installed in many car entertainment systems, too.
It’s possible that Apple’s new offering will expand the overall audience for online radio and even attract more advertisers, trends that could help Pandora as well.
But with a $5 billion stock market value and no profits yet, the highflying stock looks vulnerable.
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