The CEO of Pandora (NYSE:P) Joe Kennedy is parting ways with the company. This was announced in the fourth-quarter earnings call. What happened after that? Well, the shares rose 20%. It was a pretty bumpy ride with Kennedy, but I honestly do feel that a 20% rise is a bit too much. Alhough Pandora was never able to reach its $20/share price when it began trading publicly in June 2011, the company has 8% share of the overall U.S. radio market. Pandora was able to overachieve analyst expectations, but it still reported a loss of 9%. Kennedy was able to increase the overall subscriptions, but failed to fetch the required revenue. I don't think a change in personnel is going to drastically improve the situation Pandora is in because of the stiff competition it's yet to face.
Streaming has not yet made its mark; there's still a lot of potential, and it'll soon be one major revenue-generating source for a lot of big players out there. As of now, Pandora has approximately 8% of the Internet radio, and this figure has the potential to increase in multiples. One of the main problems with Pandora is the fact that it isn't able to fetch major revenue through this service. It has recently restricted free usage time to 40 hours per month, a bold move regardless of the angry users.
Let's take a look at Pandora's contenders.
The first thing that comes to mind when you hear "Apple" and "music" is iTunes. There have been reports that Apple is looking forward to starting a music streaming service called iRadio in 2013. To start off, Apple already has an iPhone and iPad user network that would be more than happy to make use of this service. It's already in the digital content business and has tie-ins with major content providers. Honestly, I wouldn't be surprised if it takes Pandora off of iOS completely. Pandora could fight back with a lawsuit, but Apple would survive and leave Pandora with a hole in its wallet. At the same time, purchasing Pandora services would be a major breakthrough for Apple in case it is planning an iRadio launch.
Yes, Microsoft's Zune didn't go as per company expectations, but it has come up with an Xbox live music streaming pass. Microsoft has a good 45+ million Xbox live subscribers who'd like to try out its new service. Despite Zune being a failure, Microsoft is aware of how to license and sell music. It has been successful in selling premium Xbox live accounts and will be able to sell its new music streaming service. If it does manage to acquire Pandora, it would be able to increase its overall subscribers and it would also be an extra feature on its Windows line of products, including Windows phone 8. It has already managed to get rave reviews on its music app featured in Windows Phone 8. A successful music streaming service would definitely increase its product sales. Microsoft has always been a safe bet as far as risky tech stocks are concerned.
Google has already been successful in replacing the phrase "search the Internet" with "Google it." It won't be long until it introduces the phrase "Let's log on to Google" replacing the term "Internet." Google is trying its very best to conquer anything and everything related to the Internet. Reports suggest that Google is planning to launch a YouTube-like music streaming service. Millions of people are already using this feature in some way or the other. It'll be a cakewalk for users to adapt to this service with the overall experience they've gotten from using the existing YouTube. Google would use this service for advertisements rather than to sell subscriptions. Though a Pandora purchase isn't required for Google, it would still help Google expand a bit.
Pandora does have the funds to compete with the giants, but for how long? Pandora faces a lot of challenges if we're looking at a long-term plan. As of now, there is no significant competitor and hence the company is in a dominant position. But big plans from big companies would definitely throw Pandora off its game. All three giants would benefit if they acquire Pandora, and with Apple and Google set to launch their own music streaming services this year, I wouldn't be surprised if a takeover-related announcement pops up soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.