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Sell Pandora Stock Before iTunes Radio Turns Up the Volume

pandora stock logoPandora (P) is down about 7% in a week, thanks in large part to the launch of iTunes Radio from Apple (AAPL).

That’s with good reason, since Pandora stock stands to lose a lot of ground thanks to the upstart iTunes Radio.

Back in August, the outgoing CEO of Pandora said that iTunes Radio was no big deal … but investors were none too pleased by his assurances or the fact that the streaming radio company’s earnings guidance took a hit.

Then more recently, Pandora’s founder admitted that iTunes Radio would have a “modest” impact.

And of course there’s the report that iTunes Radio enjoyed 11 million unique listeners across just five days after launch — a pace that means it could eclipse the Pandora audience in about a month if the clip keeps up.

With news like this, it’s no wonder Pandora stock price declines have continued unabated.

To make matters worse, Apple is bringing out the big celebrities — including a station emceed by Katy Perry and Justin Timberlake’s forthcoming album The 20/20 Experience – 2 of 2 streaming exclusively on iTunes Radio ahead of its release.

I personally owned Pandora until recently, expecting strong earnings and the impact of a direct ad sales effort under its new CEO to pay off. That thesis stood up; however, the decline in earnings guidance coupled with strong insider selling and the launch of iTunes Radio proved just too big a risk for me, and I punched out of Pandora stock as a result.

Good thing I did, too, because the declines have been steady and substantial — and with the stock market looking to enter a traditionally choppy October, this Internet stock has a host of headwinds facing it.

Pandora might hang on to most of its users in the face of iTunes Radio, and assuredly the streaming radio audience is growing all the time. A smaller piece of the pie would be disappointing, but doesn’t mean Pandora can’t find growth.

While Pandora is profitable, it certainly isn’t comfortable enough yet to give up margins or to cede ground to the competition without it affecting the build-out of the service. Consider Pandora is holding a secondary stock offering to generate more cash even as the Apple iTunes Radio nonsense plays out!

Investors who underestimate the threat of iTunes Radio aren’t taking this service seriously. With the fluid integration of software and hardware, Apple is at the top of its game in venues like this.

The good news is that Pandora probably won’t see any damage from Apple and iTunes Radio in its earnings report for the current quarter, set for release in mid-November. That allows one more good quarterly filing thanks to the focus on advertising, and it could provide a short-term pop before iTunes Radio competition sets in. And if you have owned long-term, the gains in the stock still are substantial, with Pandora stock price up more than 170% so far in 2013.

But if you haven’t sold Pandora stock yet, wait for the November earnings pop … and if and when it comes, that’s your opportunity to exit at the best price.

Because the sad reality is that in 2014, streaming radio will belong to iTunes Radio.

Related Reading on Pandora Stock

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he had no positions in the stocks mentioned. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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Comments
  • short

    Why do you say they won’t see any damage from iTunes radio in its next earnings report?