The marriage of Pandora Media Inc. (P)  and Sirius XM Holdings Inc. (SIRI - Get Report)  could be a potent one in what is becoming a crowded music streaming market. 

The long impending merger between Pandora and Sirius finally became an official agreement on Monday Sept. 24, with Sirius valuing Pandora at $3.5 billion. The combination immediately creates about $34 billion of market value. 

Pandora is near the top in user share in music streaming, and clearly Sirius, whose stock has done well in recent years, up 68% in the past three years, wants in on the digital play. The two companies may have a built-in synergy right off the bat.

"Synergies between its very strong in-home U.S. presence and SiriusXM's very strong in-car presence should be generatable over time," RBC Capital Markets analyst Mark Mahaney wrote in a note on Monday. The market seems to like the deal though Pandora's stock was off its highs for the day and at last check was up almost 2% to $9.26 a share. 

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While Sirius XM investors seem to be discouraged by the news, with the stock down 8% to $6.42 on Monday, the deal expands the number of outlets Pandora will have to reach listeners, which could help it fend off thick competition in the space. "Given rising competitive intensity in this sector, this was likely the safe, smart strategic move by Pandora," Mahaney said. 

Indeed, the music streaming market includes brand-named players such as Spotify Technology SA (SPOT - Get Report) , Apple Inc.'s (AAPL - Get Report) Apple Music, Amazon.com Inc.'s (AMZN - Get Report) Amazon Music, and others. Spotify, the only other publicly traded music streaming service, is down roughly 0.2% following news of the merger. For now, Pandora sits comfortably at No. 3 on the leader board of monthly users, with 36.8 million, behind Spotify and market leader, Apple, according to Statista. 

Mahaney, who upgraded his rating on Pandora to "outperform," has a price target on the stock of $10 a share. But he still warns of thick competition. "Pandora may lose market share if users increasingly switch to on-demand products such as Spotify and Apple Music," he said. 

Pandora is building out its on-demand offering, which currently has about 2 million subscribers, in RBC's estimate. That will be crucial for Pandora to build, perhaps with Sirius, as it looks to compete with Spotify's currently superior on-demand offering

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