Shares of Pandora Media Inc (NYSE:P) are up better than 15% in the last month. Much of that gain has been fueled by an upgrade from Goldman Sachs, whose analysts declared that the threat from competitors has “diminished.”
I have no idea where Goldman is getting that from. iTunes Radio, Apple Inc. (NASDAQ:AAPL)‘s Pandora killer, has not even hit the market yet.
When it does — likely next month — Pandora Media Inc (NYSE:P)’s problems will begin to materialize.
Apple’s iTunes Radio is a Pandora clone
Those who have played with iOS 7 have nearly all come away in agreement — iTunes Radio is a Pandora Media Inc (NYSE:P) clone. Like Pandora, it lets users listen to music for free, and it functions exactly the same — listeners seed a station based on an artist or track, then like and skip songs. (Those who have not seen iTunes Radio in action can check out the demonstration from BTIG’s Rich Greenfield.)
But more importantly, iTunes Radio is deeply integrated into iOS. For example, using Siri, an iPhone owner can start playing a station through iTunes Radio — something Pandora Media Inc (NYSE:P) can’t do. Obviously, this would be especially helpful when driving a car. And given that a significant percentage of listening is done in the car, iTunes Radio’s Siri integration cannot be understated.
Moreover, in the past, Pandora Media Inc (NYSE:P) investors have cheered when the company announced that its service was being integrated into yet another new vehicle. But numerous cars already support iTunes playback, and Apple Inc. (NASDAQ:AAPL) is even taking it a step further. With iOS 7, its new iOS in the Car feature beams Apple Inc. (NASDAQ:AAPL)’s operating system to the dashboard of various car models.
And it could steal at least half of Pandora’s listeners
Given that it’s already installed, integrated with a user’s larger iTunes library, and works with Siri, I have to believe that the majority of people who own Apple idevices won’t be using Pandora for very much longer.
And that could be devastating. Pandora Media Inc (NYSE:P) doesn’t provide a breakdown, but it’s likely that at least half of its listeners, and probably a lot more, are using Apple Inc. (NASDAQ:AAPL) devices. In the first quarter, 79% of Pandora’s listener hours came from mobile devices. In the U.S., which is Pandora’s dominant market, Apple Inc. (NASDAQ:AAPL) continues to be the single biggest mobile player.
Although iOS’ market share has dwindled as Google Inc (NASDAQ:GOOG)‘s Android has become more popular, most of Android’s growth has come from overseas — emerging markets that Pandora isn’t involved in.
According to COMSCORE, Inc. (NASDAQ:SCOR), Apple had about 40% of smartphone subscribers in the U.S. in June. In terms of tablets, Apple Inc. (NASDAQ:AAPL)’s iPad had 45% of the tablet sales. So, just based on those numbers, somewhere around 40% of Pandora’s mobile listeners (mobile listeners being the vast majority of its listeners) are on Apple devices.
But it’s probably a lot more than that. iOS continues to lead Android in user engagement. Users of iOS devices download more apps and use them more often. Thus, while only Pandora might know the exact numbers, it wouldn’t be unreasonable to assume that two-thirds of its mobile users are coming from Apple devices.