Pandora Is Still a Buy, Despite Apple Music, Google Play

NEW YORK (TheStreet) -- These are tough times for Pandora (P) shareholders.

Over the past month, the Internet streaming service has been hit by a formidable one-two punch from Apple (AAPL) and Google  (GOOGL), both of which launched new music services. For a company like Pandora, which generated $231 million in revenue in 2014, the entrance of Apple and Google into their market should mean a certain early death. (Apple's 2014 revenue was $58 billion; Google came in at a more modest $17 billion.) 

Since June 8, when Apple announced it would be starting its own subscription-based streaming service, Apple Music, Pandora's stock has tumbled 15%. Google on June 9 announced a limited, but free, ad-supported version of Google Play Music. The ad-free, unlimited version costs $9.99 per month.

The moves by two of the world's largest tech companies underscore the intensifying interest in streaming music, a market already served by Spotify, iHeartRadio, Rhapsody, Rdio and others. The surge in competitors is one reason Pandora shares have fallen 47% over the past 12 months.

But in the wake of the Apple and Google announcements, investors may be discounting the strength of Pandora's ad-based business model and its already large and dedicated user base, suggests RBC analyst Mark Mahaney. Total listener hours for the quarter that ended March 30 grew more than 10% from a year earlier to 5.3 billion.  

Consumers, Mahaney argues, prefer free, ad-supported music over subscription-based services by a 3 to 1 ratio. Apple Music is also being priced at $9.99 per month. And Pandora stands to benefit from taking larger shares of both the global radio and digital ad markets, estimated at $33 billion and $70 billion, respectively. Mahaney has a buy recommendation on Pandora with a 12-month priced target of $25.

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