Pandora Media (P) shares plunged Friday on news that Apple’s working on its own version of the internet radio service. But is that an opportunity to pick up some shares?
To be sure, a service like Pandora makes a ton of sense for Apple (AAPL) and provides real competition. It can guide people listening to the radio to buy songs they like on iTunes, and because of that it doesn't need a radio service to make money as a stand-alone entity. In the past, it has not proven wise to bet against Apple.
And Pandora’s long-term investors have not done nearly as well.
But here's an argument for Pandora: there’s sure to be at least one competitor in the radio space. Apple’s rumored intentions validate Pandora’s approach and increase the chances that someone -- Amazon (AMZN) ? Google (GOOG)? -- might partner or buy it at some point.
Also, Pandora has first-mover advantage. As YCharts reported, Pandora has 72.7% market share in internet radio. In the second quarter, revenues were up 51% to $101.3 million. Its price to sales ratio has decreased.
P Price / Sales Ratio data by YCharts
If you buy in to the idea that Pandora can turn sales into profits, and that Apple's reported entry will inspire more people to check out internet radio, the stock plunge of last week might not look so bad.
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