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Should Pandora's Investors Worry about Spotify's New Radio Service?

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Swedish music streaming service company Spotify announced on Tuesday that it will begin offering free Internet radio. Spotify's new feature for mobile devices will compete directly with Pandora (NASDAQ: P).

Spotify users in the U.S. can stream Internet radio for free on their iOS devices, including Apple's (NASDAQ: AAPL) iPhone or iPad. The update is currently available for download on Apple's App Store.

iPhone or iPad users can download the Spotify app and create unlimited streaming radio stations from artists, albums, individual songs, or playlists. Users can save tracks by simply "liking" the song, allowing them to find it later. Pandora also offers a song liking feature, but users cannot see which tracks are "liked."

Spotify's users can now search through their friends' playlists. Like Pandora, the free version will have commercials and a limited amount of song-skips, and, also like Pandora, Spotify offers a premium version. By paying $9.99 per month, users get commercial free music and unlimited track skips.

Shares of Pandora saw increased weakness early during Tuesday's trading session, as investors may have believed that this will directly hurt the company's bottom line.

Benzinga spoke with a couple analysts covering Pandora to see what they thought about Spotify's new service.

The general consensus seemed to be that Spotify's new service is not too much of a worry for people holding Pandora stock.

"Pandora has visible costs, a competitive advantage, and a much better pay structure with its government radio licensing rates," one Pandora analyst stated. "It costs Pandora about $20 per streaming music hour, and has just attained break-even."

The analyst also continued to say that, like many Internet-related companies, first movers attain about 80% market share. Google (NASDAQ: GOOG) has 80 percent-plus market share in search. According to the analyst, Pandora will hit the 80 percent mark in the "next two and a half quarters."

Shares of Pandora traded down as much as 7 percent on Tuesday. Yet, later in the session, investors bid Pandora's stock back up. Going into the close, shares were nearly unchanged.

Spotify has about 10 million registered users with about 3 million paying for the desktop premium service, while Pandora has about 150 million registered users.

Shares of Pandora are trading about 13% higher year-to-date.

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