Will Apple dethrone Pandora?

It is apparent that Apple is a much bigger company than Pandora and will undeniably make its presence felt. There are plenty of reasons to believe that Apple can effortlessly triumph over Pandora.

To begin with, Apple's iTunes Radio offers in excess of 25 million songs as compared to a measly one million songs offered by Pandora. Such a difference in inventory of songs is not good news for Pandora, but the company's despair doesn't end there. Almost 50% of Pandora's 72.7 million costumers already own the iPhone and 11 million of those people have upgraded to iOS 7.

The growing radio streaming business may have enough space to accommodate two big companies, but even then, the superiority of Apple will quite probably help it lead the market. With hundreds of millions of people using iPhones around the world, Apple has an access to a very huge market, which Pandora is deprived of.

It is obvious that streaming radio service providers merely act as distributors and have no control over the original content, therefore the wide-reaching presence Apple gives it an upper hand over Pandora. Apple being the bigger and more popular of the two companies can afford to lower its margins and capitalize on its user-base to eliminate smaller companies like Pandora.

Recent numbers published by Pandora don't indicate that Apple has hurt it yet. Last week, Pandora confirmed that listener hours increased 18% year-over-year while the number of active users increased 25% to 72.7 million in September. This, however, doesn't paint the true picture as the active listener calculations includes anyone who had been using Pandora and may have shifted to iTunes Radio after it was launched. The real result will be confirmed when the company releases its October metrics next month. If there's a sequential decline in the number of active listeners and listener hours, then it'll be evident that the pressure from Apple has taken its toll.

Till the time we get the metrics, Pandora's investors can hope against all odds that Apple's restriction to only iOS devices will give Pandora a fair chance to compete against the Cupertino-based giant.

Conclusion

Apple's wide user base and the fact that more than 200 million people have upgraded to iOS7 is indeed a concern for Pandora. The presence of a bigger and more resourceful competitor such as Apple will most probably hinder its growth going forward. Moreover, Pandora is extremely expensive with a forward P/E of 106 times and a PEG ratio of 19.6. With the looming threat of Apple and considering Pandora's steep valuation, it makes sense to stay away from the company, at least for now.