Apple Music's Impact On Pandora To Be Short-Lived

Apple Music may be getting under the skin of Spotify, which is persuading customers to bypass Apple’s App Store, but reports Marketwatch, Pandora Media Inc. investors shouldn’t sweat the threat just yet.

The three-month free trial of Apple's new music streaming service is expected to take a toll on Pandora in the current quarter, but the “freemium” model of Pandora — namely its non-subscription, ad-supported tier — offers a unique advantage in the long run as streaming increases in the connected car, according to analysts at Needham and Morgan Stanley.

Apple Music is expected to reduce aggregate listening hours on Pandora by 2% to 3% in the third quarter, according to Morgan Stanley estimates. The bank lowered its price target on Pandora to $17 on Thursday and reiterated an equal-weight rating, saying it sees “no catalyst for shares to outperform” until after the Apple Music launch period has passed. To that tune, it also raised its estimates on subscription music adoption, saying the “heft of Apple cannot be ignored.”

But Morgan Stanley expects Pandora’s listener hours to bounce back in the fourth quarter, and grow at a per-user rate of 3% per year over the next five years, as people who don’t want to pay Apple Music’s $9.99-a-month fee return to Pandora. Free ad-supported listening will continue to “dominate in aggregate,” said Morgan Stanley analyst Ben Swinburne, particularly as cars become more connected.

With 80 million active users, Pandora is the dominant leader in Internet radio, accounting for nearly 10% of all U.S. radio listening. It is one of the major players disrupting the $15 billion U.S. broadcast radio market, and Swinburne said in-car listening will offset some of the competitive pressure from subscription-based streaming companies down the road.

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