Pandora Suffers Blow to Outlook from Clear Channel’s Customized Stations

Clear Channel (PINK:CCMO) has launched its iHeartRadio app and website in a direct assault on Pandora’s (NYSE:P) growth. Its new offering will let users create customized stations, a core feature at the center of Pandora’s business model. Pandora’s stock has slide over 10% in the last two days in part due to this news. We take a quick look at the new service and acknowledge that this could have significant implications for Pandora’s valuation going forward.

Our price estimate for Pandora stands at $10.10, slightly below the market price.

Clear Channel’s Challenge

Pandora is a leader in Internet radio in the U.S. and stands out for its ability to offer a unique and personalized Internet radio experience to listeners. Clear Channel will challenge this uniqueness when it offers users the ability to create personalized stations from a song catalog that is 10 times the size of what Pandora offers and provides a range of artists that is 5 times bigger. ^[1] And all of this is included with no caps on listener hours and it’s advertisement free at first.

Impact on Pandora?

If Clear Channel successfully markets the app and website, users may opt to go to Clear Channel instead of Pandora especially if its selection of music is indeed much larger than Pandora’s. We don’t know yet how this library stacks up without playing more with the app. However we note that many users don’t necessarily need to make a switch since they can enjoy both services for free, which is what we plan to do until we pick a favorite.

However for valuation purposes, if Clear Channel or other competitors take listener hours away from Pandora, this will invariably impact Pandora’s valuation. You can modify the included chart to see the impact.

See our complete analysis for Pandora’s stock.

1. Clear Channel Offers Pandora-Style ‘Stations’, The Wall Street journal, Sept 9 2011 [↩]