Pandora Media Inc (P): Buy, Sell or Hold?

Google owns YouTube, the largest video streaming site in the world by a huge margin, and Play Music, the service that lets users download songs from a catalog of over 13 million tracks. It makes perfect sense for the tech giant to move into the music streaming business, and according to the Financial Times, that is precisely what Google is doing. Google has a reputation of offering free or cheap services, which would put even more pressure on a competitive and notoriously difficult industry.

Pandora: Vulnerable to competition?

“We have made Pandora Media Inc (NYSE:P) a de facto must-have for any Internet-connected device,” Pandora CEO Joe Kennedy said at an investor conference, where he was asked if Apple would consider yanking Pandora from iPads, and if it creates a competing music service. “I don’t think we have any fear of losing distribution on any of the iOS platforms,” Kennedy added. “That would be suicidal for Apple to remove Pandora from its platforms. That would probably be the greatest gift they could give to Google and Samsung. So, if Apple were to do something, they’d have to compete with us straight up.”

If Google and Apple start music streaming services, they will not be guaranteed success. The technology giants will be entering a field which is already saturated with a dozen of players, and according to the industry experts, not everyone is going to survive. Streaming media analyst Russ Crupnick said that the world does not need dozens of streaming services. He added that there will be tremendous challenges to get some elbow room in the marketplace.

Google and Apple could be well positioned to get success in streaming music because of their sheer size and the brand recognition. However, merely being a household name may not be enough.

The verdict

Pandora Media Inc (NYSE:P) said it expects a 40% growth in revenue in the coming year. But Pandora’s “superior growth outlook” could be more than offset by potential competition from Apple or Google, which would “materially impact Pandora’s market share.” Other competitors include Amazon.com and Spotify. What does Pandora need to fight this large-scale competition? Innovation. The core business is strong, and Pandora needs to capitalize on it. Until that happens, Pandora is a Hold for me.

The article Pandora: Buy, Sell or Hold? originally appeared on Fool.com and is written by Anindya Batabyal.

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