Pandora's Q3 Results Could Be Hurt By Apple Music, But Q2 Likely Unscathed

Apple Music is not expected to have a big impact on Pandora Media Inc P this quarter, but that could change in the coming months.

"I think, from a revenue standpoint, the quarter should be fine," B. Riley & Co. analyst Sameet Sinha told Benzinga. "[It] should come in-line. I think what people are looking for is active listener growth trajectory. That is what investors are focused on."

Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, does not have the highest expectations for Pandora.

"Here's how I would categorize Pandora's quarter: they'll probably be in-line," Udall told Benzinga. "The difference is, it's not this quarter for Pandora -- it's about the future. They already have Spotify nipping at Pandora a little bit. It probably started three, four quarters ago. Pandora's already feeling the heat a little bit."

Udall said he didn't know why consumers would continue paying for Pandora Premium unless they only use Android devices.

"But if you're using an iOS device and you're paying for Pandora Premium, I think all that revenue is at risk to Pandora," said Udall. "This could be a tough deal."

Related Link: An Apple-Pandora Merger Would Be A 'Scary Combination'

S Marks The Spot(ify)

Sinha noted that there have been a number of industry developments that could alter Pandora's trajectory.

"Spotify has become very promotional," said Sinha. "Apple Music launched, though it won't have impacted the second quarter as much. It could be more meaningful in the third quarter. I think that is going to be the area of focus for most people. How does Pandora stack up against intensifying competition for listeners?"

Pandora could be harmed by the mere perception that Apple Music is cutting into its market share.

"Absolutely," Sinha warned. "The thing with Pandora is, many of its crucial markets and many large markets (and in very high coveted demographics), the number of ads per hour have increased quite a bit. What the company needs to do is get more listeners onto the program or increase the number of hours people are listening. That's kind of keeping a cap on things. If your listener growth is not high, then that could be a problem."

No Help To Apple

Udall doesn't expect Apple Music to do much for Apple Inc. AAPL this quarter.

"Apple Music probably isn't [going to be] impactful for a while," said Udall. "[However], what is immaterial to Apple might be massive for Pandora."

Udall said he shorted Pandora last year, believing that the stock was "already trading at a price it would go for on M&A." He thought the highest price investors would pay was $35 a share. The stock reached its two-year high of $39.43 on March 5, 2014. It tumbled the next day and, more than a year later, is down more than 50 percent.

Udall now thinks Pandora could end up looking for a buyer -- albeit for a much lower price than it would have charged 18 months ago.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.