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Recently, Internet radio service provider Pandora (P - Snapshot Report) entered into a partnership with Peet’s Coffee & Tea. Per the agreement, Peet’s will have its own customized radio stations on Pandora that will be played at all of its 230 stores located in the U.S.

These customized stations will be called Eclectic Classical, Jazz Giants, Origins and Melodic Indie and will cater to lovers of different genres of music. All the four stations will offer music selected by Peet’s.

These stations will also be made available to all Pandora listeners. Peet’s alliance with Pandora aims at enhancing customer footfall in its store. Peet’s deal with Pandora follows its closest rival Starbucks’ (the leading coffee chain in the U.S.) association with Apple’s (AAPL - Analyst Report) iTunes to provide customized-in-store music and branded radio stations.

Pandora believes that this partnership will expand its listener base, which will boost top line growth going forward. However, since Peet’s does not have a significant nationwide footprint like Starbucks (SBUX - Analyst Report), any direct mileage that Pandora may get on account of the deal will not be as widespread as Apple’s partnership with Starbucks.

However, we note that Pandora enjoys a first mover’s advantage in the music streaming industry. Pandora’s already popular service driven by its effective discovery engine and well established infrastructure will boost listener base in the near term.

Moreover, Pandora’s initiative of launching in-car advertising is a major positive in the long run. The company’s partnerships with major car manufacturers such as Ford Motor Co. (F - Analyst Report) will help it to launch the service in more than 130 models. Moreover, it also has partnerships with Taco Bell, BP and StateFarm.

However, rising cost of licensing music remains a major concern in the near term. We believe Pandora’s move to raise ad-free subscription price may result in a higher churn-rate in the near term. Further, intensifying competition from the likes of Apple and Spotify remains a major headwind.

Currently, Pandora has a Zacks Rank #4 (Sell).

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