When Apple Inc revealed this week that its new streaming service, Apple Music, had 6.5 million paying users, industry commentators debated whether that was a healthy or disappointing result for a company with such a giant reach.
However, on Friday a more telling yardstick emerged as a measurement for Apple’s success: Pandora Media Inc’s stock price.
Shares in Pandora, the Internet radio service, fell by 35 percent in one day, wiping away US$1.4 billion in the company’s market value. The stock closed at US$12.39, its lowest price in more than two years.
The plunge in Pandora’s share price was to some degree the market’s judgement on the company’s outlook in the increasingly competitive field of streaming music, as Apple, Spotify Ltd and numerous other players spar for customers in a growing market. This week, Google Inc’s YouTube introduced a subscription plan including music and video.
“The fear from the investor world is that there is going to be a continued battle to fight for users, and that will depress what is already is not much cash flow even further,” BTIG Research media analyst Richard Greenfield said.
In a conference call on Thursday discussing the company’s third-quarter financial results, Pandora CEO Brian McAndrews played down the arrival of Apple Music in June, saying that the new service had only a “muted” impact on Pandora’s popularity.
However, Pandora on Thursday also downgraded its financial guidance for the rest of the year, saying that it now expected its adjusted earnings in the range from US$51 million to US$56 million, down from the US$75 million to US$85 million it had predicted three months before.
Its expected revenue for the year was lowered by about 2 percent, to a range from US$1.153 billion to US$1.158 billion.
Pandora has long been the largest Internet radio outlet in terms of users, and it has withstood challenges before, including the introduction of Apple’s iTunes Radio in 2013. However, those revised figures suggested a shrinking ability by the company to make money from its listeners.
The number of active users — those who tune in to the service at least once a month — peaked at 81.5 million at the end of last year, and in its third quarter fell to 78.1 million, the company said.
At the same time, it is spending more to attract those listeners. Pandora’s sales and marketing expenses grew by 48 percent in its third quarter, compared with the same period last year, and Pandora chief financial officer Michael Herring on Thursday said that marketing budget would increase further next year.
Investors have also long been concerned about the cost of music licenses. In its third-quarter report, Pandora said that it had reached a US$90 million settlement with the major record labels on royalties for songs from before 1972, an issue that has caused uncertainty.
Pandora also said it was taking a US$23.9 million charge for songwriting royalties.
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