Pandora Sees Growing Pressure From Apple

Pandora (NYSE: P) has been showing signs of survival this year. The company has been positioning itself well in the internet radio industry and advertising is strong. Up until last week, it appeared that Pandora was going to be one of the few new internet IPOs to succeed (unlike Facebook (FB) and Zynga (ZNGA)). However, everything changed on Friday when Apple Inc (NASDAQ: AAPL) announced they were in the process of building a new internet radio to rival Pandora. As you can imagine shares of Pandora dove on Friday, down 16%.

Apple in still in the beginning stages of its plan but this announcement certainly is putting lots of pressure on Pandora. The good news is Pandora is not out of it yet. The company always has the option to sue Apple for copying its service but lately Apple has been on a lawsuit win streak so don’t get too excited.

As of right now, we still do not know much about Apple’s plans but we do know that this new Pandora-like service will most likely be an addition to iTunes. Next, we know that Apple is in talks with the content holders, in an attempt to make the service cheaper to operate. Other than that, we do not know how and in what way Apple’s version will differ from Pandora.

There is some good news though for all you Pandora shareholders. Google (NASDAQ: GOOG) released a service similar to Pandora’s about a year ago. Needless to say, it has done terrible and barely a blip on the radar for Pandora. Next, Pandora still has a lot of loyalty when it comes to advertisers. The advertisers know that Pandora is still a popular service out there and that is not likely to change. Even if Apple does build this new service, Pandora has had its name out there for quite some time. People are not going to drop Pandora just because a bigger company came in and copied it, just as Google.

Pandora currently does not have a P/E ratio and its forward P/E comes in at a whopping 210. However, the company does not have any debt and earnings growth next year is expected to come in at 156% with 40% over the next 5 years. As you can see, Pandora is slowly becoming a very profitable service and there is a lot of growth potential here. Currently, shares are up 4.6% year to date.

The bottom line here is that Pandora is still a great service that has a loyal following. Keep an eye on any new developments from Apple but do not expect Pandora to fail. Anyone who is not currently invested in Pandora but wants to be can use Friday’s decline as a buying opportunity. However, please examine the risks involved and do your own homework to determine if this trade is for you. Remember, this is a speculative trade but it definitely has the potential to pay off to those who are patient.

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