The Beginning of the End for Pandora Media Inc (P)?

Add in a number of extra features, including voice-recognition commands through Siri and iTunes exclusive content, and there are a number of reasons that iTunes Radio is a more compelling alternative than Pandora.

Any Pandora user that has an iOS device or an iTunes music library has a strong incentive to try iTunes Radio instead of Pandora whether it be for the more customized experience, the ability to listen to a music library on other devices via the cloud, voice recognition capabilities, or cost. Given the hundreds of millions of iOS devices in use, that is a tremendous portion of the streaming music population.

So what would cause listeners to continue to choose Pandora? The only notable advantage is the ubiquity of Pandora; the company has apps for more devices than Apple Inc. (NASDAQ:AAPL) does, including smartphones running Google Inc (NASDAQ:GOOG)‘s Android operating system and home entertainment devices such as Roku boxes, connected televisions and blu ray players. Pandora, like Netflix, Inc. (NASDAQ:NFLX), is one of the few content providers that has made its applications available on almost any device. This is Pandora’s most significant competitive advantage and is certainly one to continue to monitor.  Without this advantage, the investment thesis for Pandora Media Inc (NYSE:P) disappears completely.

How can Pandora support a market capitalization of almost $3 billion?

As this article summarizes, Pandora is far from profitability and does not have a clear path towards generating solid earnings despite tremendous revenue growth. Meanwhile, the competition for radio listeners is highly-competitive and became even more so when Apple Inc. (NASDAQ:AAPL) unveiled a competing product that is largely comparable to Pandora’s with a few notable advantages. Without the benefit of a must-have feature that differentiates Pandora from the competition or the benefit of user stickiness from a larger ecosystem to attract users, it is difficult to find a way for Pandora Media Inc (NYSE:P) to justify its current market capitalization of almost $3 billion.

Based on this assessment, I will back up my bearish sentiment on Pandora with an underperform CAPScall.

Brian Shaw owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). The Motley Fool recommends Apple, Google, and Netflix. The Motley Fool owns shares of Apple, Google Inc (NASDAQ:GOOG), and Netflix, Inc. (NASDAQ:NFLX).

The article The Beginning of the End for Pandora? originally appeared on Fool.com.

Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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