Why Pandora is Choosing to IPO Now

Argument: Pandora is going to to suffer from Apple’s launch of iTunes in the cloud. They might as well IPO before that happens.

Pandora is an internet radio service and the chief custodian of the Music Genome Project. Pandora first launched in 2005. Three years later they saw their user base grow exponentially as a direct result of smartphones being adopted at exponential rates. 

1. In the follow graph you can see that Pandora’s user base began to grow exponentially some time around Dec 2009:

2. Morgan Stanley’s annual Internet Trend Analysis confirms that smartphone adoption rates also began to grow exponentially during this time:

The second graph isn’t just correlated with the first, it caused it. In their SEC Filing Pandora acknowledges that its success is mobile driven:

Our number of listener hours on mobile devices has surpassed listener hours on traditional computers and we expect that this trend will continue and is likely to accelerate.

Pandora Is #1, But Not For Long

Revenues aside, Pandora is the #1 cloud-based music platform. But competition is about to heat up as Apple is on the brink of debuting iTunes in the cloud. 

iTunes already has many more users than Pandora, and I presume that Apple will move every single one of those users’ libraries into the cloud. When that happens, Pandora will lose its advantage over iTunes: they will no longer be the #1 cloud-based music platform.

For many users there is little need for Pandora once they have full mobile access to iTunes + Genius Playlists. This is big. Realizing that their entire iTunes library is now available in the cloud, a large subset of Pandora’s users will no longer find a need for the service.

Apple’s Ability To Form Strategic Partnerships

Pandora is present on more than 200 connected consumer electronic devices ranging from smart-phones to TVs to set-top boxes to Blu-ray players and is able to stream visual, audio, and interactive advertising to computers, smart-phones, iPads, in-home connected devices and even cars.

Go ahead and read that quote. It’s taken straight from Pandora’s website. Does anyone doubt that Apple will be able to secure equal — if not better — partnerships than Pandora? 

In a year or two Apple will have made your entire iTunes library accessible through a variety of wireless devices (iPhone, iPad, Car, Laptop, Desktop).

This is going to crush Pandora, and Pandora knows it. Now seems like the perfect time to IPO.