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Investors of internet music streaming giant Pandora (P) were like "deer in headlights" when Google (GOOG) announced last week that it was entering the fray of music streaming. Who could really say that Google's announcement caught them off guard? In fact, after Google signed its content-sharing deal with Sirius XM (SIRI) last year, it's a wonder that the music streaming business has taken Google so long. It's been the logical next step to Google's media building empire.

After all, for more than a year, it's been rumored that Apple (AAPL) had planned to enter the mix. Google did what it always tries to do - steal Apple's thunder. While Apple was hardly surprised by Google's entry, I was nonetheless amazed to see the stunned reaction by Pandora's supporters. It became a "who's who in music righteousness."

Somehow, the feeble aspect of Pandora's business and the fact that the company can't effectively monetize its model was no longer important. The idea that Pandora "needed to be saved" because Pandora was "great for local musicians" rubbed me the wrong way. Let's stop pretending that this company is a non-profit organization.

Essentially, people began singing Pandora's sad tunes and petitioning publicly for its survival against Google and Apple. Everyone had violin. But let's not get carried away here. With the company's first-quarter earnings results due out on Thursday, Pandora will have ample opportunities to defend itself and affirm its ability to navigate any unforeseen competitive threats. Can it do it?

Analysts are projecting a loss of 10 cents per share on revenue of $123.83 million. This would represent year-over-year revenue growth of 53%, while the net loss would signal a year-over-year improvement of 16.6%. While these numbers (if they are met or exceeded) would signal solid year-over-year improvements, I don't believe anyone would be surprised. After all, Pandora announces its audience metrics each month.

In the April release, the company said that listening hours jumped 24% from 1.06 billion to 1.31 billion. This gave Pandora a 7.33% share of U.S. radio listening, up from 5.95% last year, while active listeners stood at more than 70 million strong. Again, nobody is arguing that Pandora has a solid platform. Admittedly, it is one that I enjoy. Still, this doesn't remove questions about Pandora's ability to make money.

The problem, Pandora remains too dependent on content, much of which has proven too costly. The perfect example was when the company mentioned on its blog that it was installing a 40-hour monthly limit on anyone listening for free listening via a mobile device. The company said that listeners who exceed that 40-hour limit will be given the options to listen on a personal computer, pay a fee of 99 cents for the remainder of the month, or signup for the ad-free subscription service.

The company said that of its active listeners, less than 4% will feel this effect. However, in April, the company announced that it had reached 200 million registered users. This means close to 1 million users fit this criteria. This would amount to almost $13 million dollar under Sirius' subscription model. While 200 million users is indeed incredible growth for Pandora, here again, it's less impressive when looking at it from a business perspective - which doesn't make sense.

In fact, since 2005 when Pandora's first registered user signed up, users have continued to climb at an astounding rate. Essentially Pandora has doubled its listeners since July 2011, when the company reached 100 million registered users. But the fact that only 1% of them are paying for the service, makes me wonder, what's the point? It's like a restaurant boasting about how many people walks in each day, but they never actually order anything.

By contrast, Sirius XM just announced a record 24.4 million total subscribers, of which 20 million are paying for the service themselves and growing 9% year over year. This is while Sirius' free-cash flow surged from $15 million to $142 million. I've argued that Sirius' ability to monetize its model makes it an attractive acquisition candidate to both Apple and Google.

With the success of iTunes and Apple's leverage with music labels, I don't see how Pandora can ever survive once Apple officially announces its entry, especially if Apple offers a combination of "free and pay" service. Add the possibility of Apple offering "Pandora-like features" and other on-demand options like "buy-now capabilities" it's possible that Pandora is seeing its last days.

Bottom Line

I think Apple's "iRadio" or "iStream" could take as much as 30% share from Pandora in the first twelve months of its launch. The question is, what will Google's prospects be? It makes sense for Google to buy Pandora and leverage Pandora's 200 million registered users. Many of which could then become Android fans migrated from Apple devices. There are tons of directions this situation can take.

Meanwhile, with shares of Pandora already up more than 70% on the year, I think it's time for Pandora investors to take profits, especially since Apple is expected to announce the arrival of its music service as early as next month, according to sources. If you are still holding shares of Pandora here, you are playing a game of "chicken" with your gains. I would sell and buy Sirius XM instead.

Source: Time To Bail On Pandora, Buy Sirius XM