Nice, Pandora Media Inc (NYSE:P). A net addition of 700,000 new paying subscribers, with total paying subscribers up 114% year over year — that’s impressive! Or is it? When we bring Apple Inc. (NASDAQ:AAPL)‘s iTunes business into the picture, the story begins to look very different.
A lurking giant
What’s the figure that’s haunting Pandora Media Inc (NYSE:P)? 575 million, which is the number of Apple Inc. (NASDAQ:AAPL)’s iTunes accounts linked to credit cards. With the recent announcement of iTunes Radio at this year’s Worldwide Developers Conference, Pandora investors should take time to digest this number.
Pandora’s 2.5 million paying customers are like breadcrumbs to Apple Inc. (NASDAQ:AAPL)’s 575 million. Plus, Apple gains new iTunes accounts in droves. In the last 12 months alone, Apple added about 175 million accounts — quite a contrast from the paltry net increase of 700,000 paying subscribers for Pandora in its most recent quarter.
And in terms of revenue, Apple’s iTunes, software, and services segment delivers some massive numbers:
Pandora Media Inc (NYSE:P)’s $472 million revenue in the trailing 12 months looks like small beans when compared to Apple’s iTunes, software, and services revenue. To add some context to the impressive size of this Apple segment, it commands more revenue than Facebook Inc (NASDAQ:FB), Netflix, Inc. (NASDAQ:NFLX), Sirius XM Radio Inc (NASDAQ:SIRI), and Pandora Media Inc (NYSE:P) combined.
Yes, this segment includes sales unrelated to music, like e-books, apps, and software, but all of these are sold in the Mac App store. And the Mac App store, of course, is part of the iTunes store. Apple guru Horace Dediu estimates that this business has a gross margin between 15% and 17%, with upside possible. By his calculations, the segment could have contributed as much as $2 billion in revenue in 2012, up from about $1.6 billion the year before.
Apple’s too big to ignore
2.5 million versus 575 million. That difference is a chasm. Can Pandora Media Inc (NYSE:P) survive the advent of Apple Inc. (NASDAQ:AAPL)’s new iTunes Radio?
The article A Number Pandora Can’t Ignore originally appeared on Fool.com and is written by Daniel Sparks.
Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Netflix. The Motley Fool owns shares of Apple, Facebook, and Netflix.
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