Pandora Loses More Than A Third Of Its Value As It Battles Apple Music For Listeners

Shares of online radio service Pandora tanked about 36 percent on Friday.

The sharp decline comes after the company reported a loss of almost $86 million yesterday. The call was the company’s first report on earnings after the June 30 launch of Apple Music, and Friday’s dive shows investors were not pleased with how the Oakland, California, company stacked up against the fledgling streaming service.

Pandora’s loss comes as Apple says its music service has gained 6.5 million paid subscribers, and 8.3 million people are still using the free three-month trial. Though the service has many critics, that number trounces other players in the online music space. The leader in paid subscriptions, Spotify, had 20 million paid subscribers in June. Pandora can’t seem to keep up, with only about 4 million.

The costs of the subscriptions are also very different. A new Pandora One subscriber pays about $4.99 per month. Spotify Premium and Apple Music users pay $10 per month.

In the past it seemed Pandora could stay in the game because of its high total of monthly active users — about 80 million. But Spotify is quickly catching up, with almost 75 million users. Though Apple may be far from that number at the moment, it’s growth in just the past four months is staggering.

As Apple and Spotify edge ever closer to Pandora, the company’s user growth is stagnating. In yesterday’s call, Pandora reported it had 78.1 million active listeners. In the quarter ending the day of the Apple Music launch, Pandora had 79.4 million active listeners.

Apple and Spotify are beating Pandora at its own game. Founded in 2000, the streaming service dominated mobile music streaming from the early days of the iPhone. The app was able to gain more user engagement than even Facebook. This engagement translated to big dollars in advertising.

But even engagement growth is tapering off. Listener hours grew only 3%, as compared to 5% in the quarter ending June 30.

Pandora’s executive team thinks they’ll be able to ride out the Apple Music storm. They pointed to the hit the company suffered when iTunes launched its radio service in 2013.

But major questions remain about whether or not younger listeners are interested in solely a radio streaming service. Both Spotify and Apple offer users on-demand music options in addition to radio services that can be used for discovery. Pandora’s radio stations are as great as ever, but when you want to listen to Adele’s new single and have an ugly cry, you don’t want to hit an Adele station and hope that song comes on. You just want to play it.

Pandora realizes this.

“As I said before to the extent the demographic swing at all, younger people are more likely to try out some of the on-demand services and want to be have more of a lean in experience versus a more lean-back experience,” Pandora CEO Brian McAndrews said. “I think one of the challenges for the industry and for Spotify is how many of those teens are actually paying for it, and an on-demand model is meant to be paid for and subscribe to.

As my colleague Josh Constine noted, a bright spot for the company today as shares plummet may be its recent acquisition of TicketFly. According to the call, revenue to Ticketfly for the first nine months of 2015 was about $52 million, with gross profit after the client portion of the fees of about $29 million.

But clearly the deal, which may be included in part of the fourth quarter’s earnings, is not enough to calm investors. In fact in the call, analysts had some concerns that Ticketfly does not currently sell out venues, and about 40% of seats remain open at shows. McAndrews said Pandora has a history of being able to sell out bands, citing The Rolling Stones and “up-and-coming” band ODESZA. Though Pandora is sure to boost marketing for Ticketfly events, being able to draw concert goers for too well-known bands does not indicate that Pandora will necessarily be able to sell-out venues for bands with smaller followings.

And even with the acquisition, Pandora lowered its guidance for the remainder of 2015. Though Wall Street may be losing its faith in the company, Pandora will keep the music playing and test new products to drive up engagement in the next quarter, McAndrews said in yesterday’s call.