However, Apple Inc. (NASDAQ:AAPL)’s entrance into the Internet radio space could be devastating to Pandora, as they have never faced such competition. In particular, mobile revenue was Pandora’s largest growth driver in its last quarter, producing $116 million, a 92% increase over the prior year . No doubt, much of that growth came from Apple products. Now, iPhone users may not all switch to iTunes Radio, but rest assure that most will at least try the new service.
As a result, Apple Inc. (NASDAQ:AAPL) could be a Pandora Media Inc (NYSE:P) killer, and it is really hard to fathom Pandora’s momentum given the release of iTunes Radio just a week away. In a technology world where being new is also cool, iTunes Radio will be flashy, different, and is essentially what Pandora used to be.
Stay Away From Big Decisions
With all of the immediate threats that Pandora faces, I will be most impressed with McAndrews if he’s able to keep calm under pressure, and not make any major decisions initially.
Sure, we can look at the 0.13 cents that Apple Inc. (NASDAQ:AAPL) is paying to the music industry (plus ad share) and assume that Pandora should strike a quick deal to boost its current 0.12 cent payout by 0.01 to the music industry . We can also demand a major platform change from Pandora following iTunes Radio’s launch in order to boost growth. However, what Pandora needs right now is the absence of a Netflix-like move.
For example, Pandora Media Inc (NYSE:P) is valued much on perception, and the idea that it will continue to grow. As a result, investors have ignored much of their problems, much like Netflix in 2011 when it was priced at $300.
Back in February, Pandora implemented a 40 hour per month cap on free mobile listeners , and then removed that cap last month . For the new CEO, it’s important that this fickleness does not take place.
Pandora is walking a thin line in potentially making a drastic change to increase profitability and maintain competitiveness against juggernauts like Apple, or making a change that spooks the market. Therefore, the possibility of such change becomes a risk, because if Apple Inc. (NASDAQ:AAPL) is successful, Pandora might get desperate, which would show in their actions.
Final Thoughts
Overall, there seems to be too many risks right now. I’m not suggesting that Pandora is a bad company, or that it won’t stand the test of time to become the next Sirius XM Radio Inc (NASDAQ:SIRI). However, after a 160% gain in 2013, no profitability, and a slew of challenges on the horizon, Pandora looks poised to see a 2011 Netflix-like fall. Now, whether or not it sees a recovery like Netflix is unknown. Regardless, it is a big gamble to be buying Pandora right now, with little upside and a great deal of risk.
The article Are You Ignoring This Company’s Risks? originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple.
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