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Pandora, Apple, and the Car



March 11, 2014 – Comments (0) | RELATED TICKERS: P , AAPL

Pandora's Success Relies Solely on the Car Platform

It is no secret that Pandora has seen phenomenal success in their core business and in their stock price for the last couple of years. However Pandora has one battle that the company must win if they want to see this kind of success continue in the future- and that is automotive integration. 
For those of you reading that have followed Pandora closely over the last year, there have been a numerous amount of short term factors that have pushed Pandora's stock price to unseen levels almost every month. These range from iTunes Radio not being as big of a success as predicted, reporting listenership on a monthly basis with a year over year analysis, platform integration such as Mobile and automotive, and continued success with increasing ad revenue. 
If you have got caught up in the day to day news and drama that Pandora has provided like I have, you might have lost track of what Pandora is really trying to do. That is to take over the 12 billion dollar traditional radio industry. With a market cap of just under 7 billion, you are probably telling yourself that this looks like a great pick! Unfortunately to do this they must challenge their radio competitors on their home turf- the car (where a majority of all radio listenership comes from). 

Short Term Problems Will Push the Company to Focus on the Long Haul

Pandora has been reporting data on their listenership monthly for many months now. This was a ploy on the company's part to get people excited about the company and push up the stock price. The company continued to report data on a year over year basis, even though month to month everyone saw that their growth was slowing. They have just recently announced that they will stop announcing monthly data and will now present data quarterly. This is a huge red flag that they will be experiencing short term issues. 
Within iTunes Radios first month, investors announced that the service was a complete flop and clearly Pandora had the superior product. They had taken only a fraction of Pandora's market share and only came up with a few million users. After the first couple months the service was quickly forgotten, but this last week the service seems to be breaking the news again. Just yesterday it was announced that iTunes Radio was the third largest internet radio provider with 8% of the market (iHeartRadio at 9% and Pandora at 31%). Analysts also predicted that the service would quickly become number two, surpassing iHeartRadio by the end of this year. Pandora still has a comfortable lead, but investors are spooked to see what Apple has done in six months. 

Apple Plays the Long Game 

Apple has been committed to the music industry for a long time. Ever since Steve Jobs returned and introduced the iPod, music has been close to Apple's heart and they have integrated music into every device they have produced since. This month they officially announced their newest platform for music and other tasks- Carplay. Apple realizes that to stay on top of the continuing growth of streaming music (and the slow down of digital downloads) it must go head to head with the big players in streaming radio, including Pandora. That's why they have spent the better part of this last year producing Carplay- a real platform in your car that will let you make calls, text, and listen to your favorite streaming music (except Pandora). It's worthy to note that Pandora has been pushing into the automotive platform for a couple years now, and has their service in over 200 models of cars. With that said, all they offer is music and people are desperately looking for much more in the car. People need the ability to access their phone wirelessly and seamlessly- Carplay fits this need perfectly. If Apple continues its push into the automotive platform, they could easily kill Pandora's 12 billion dollar opportunity. 
With Pandora's stock breaking the $40 mark from single digits in just over a year is nothing to dismiss, however great picks are chosen for the long term. Will Pandora be able to beat out Apple in the car? Only time will tell! 

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