Apple's (AAPL) Rumored Beats Deal Isn't Major Threat to Pandora (P) - Wells Fargo

According to the latest rumors, Apple (Nasdaq: AAPL) is considering buying Beats for $3.2 billion. In the view of Wells Fargo analyst Peter Stabler, Beats could serve as an entry for Apple into on-demand subscriptions, but he sees minimal incremental threat to Pandora (NYSE: P).

"Apple’s current iTunes Radio product is a free, ad-supported competitor to Pandora, although subscribers to Apple’s iTunes Match service ($24.99/year) are able to listen to an ad-free version of the service. The addition of Beats would provide Apple with a foothold on the Android platform, albeit with a sub-based product that competes most directly with sub-based Spotify, Rdio et al. Billboard Magazine reported that as of mid-March, music download sales on iTunes were down 13%, perhaps offering rationale for Apple to pursue entry into on-demand subscriptions. Unless the Beats product was to offer a new free, ad-supported version, we don’t believe much would change in terms of Pandora’s competitive landscape, where we believe iheartradio.com serves as the most direct Android based competitor. Data from App Annie shows Beats as occupying the 7th position in the music category in the Google Play store, and the 18th position in the iPhone music app category, where the recent launch of an in-app subscription feature temporarily boosted Beats to a #1 position (see next page)," said Stabler.

"We believe Pandora has long faced substantial competition for listeners across a wide range of competitors. Though the addition of Beats would provide a new type of service to Apple, unless the product evolves to offer an Android versioned, ad-supported model, we don’t foresee a significant change to the competitive monetization landscape. With regard to Pandora’s advertising opportunity, we continue to believe P has a substantial and defensible first-mover advantage as the only digital audio provider with audience scale, accredited and comparable audience data, a broad ad format offering, and skilled radio salesforce," he added.

Wells Fargo has an Outperform rating on Pandora with a price target of $38-$40.

For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.

Shares of Pandora closed at $22.20 yesterday.

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