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Pandora's Family Plan to Hit Spotify, Apple Music Dominance

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Pandora (P - Free Report) followed the footsteps of Spotify (SPOT - Free Report) , Apple (AAPL - Free Report) Music, Alphabet (GOOGL - Free Report) and Amazon (AMZN - Free Report) and launched Family Plan for Pandora Premium recently. The plan, priced at $14.99, allows six people to gain access to Premium features under one billing account.

The company has kept the pricing and shareability on par with the family plans from Apple Music, Google Play Music, Spotify and Amazon Music, which were launched in June 2015, December 2015, May 2016 and November 2016, respectively.

Pandora CEO Roger Lynch was quoted by CNBC saying, "Frankly, we were missing one of these big opportunities, which is a family plan." Notably, the addition of the family plan is helping audio as well as video streaming companies boost their subscription base.

How is Pandora Poised to Benefit?

We note that digital music is growing on the back of on-demand streaming subscribers. The International Federation of the Phonographic Industry reported that in 2017 subscription-based streaming revenue accounted for 38% of all recorded music, up 9% from 2016.

Pandora has also been benefiting from rising subscription revenues on the back of growing Premium subscribers. The company’s subscription revenues increased nearly 40% in fiscal 2017 from fiscal 2016.

The reasonably priced family plan, which comes to around $2.25 per person per month, is expected to aid subscriber growth further. Moreover, higher monthly ARPU of Premium subscribers will continue to boost overall ARPU of the company. Besides, the company’s "twist" through a feature called "Our Soundtrack" is what the CEO is currently focusing on.

Given the highly competitive market in which Pandora operates, the decline in active users over the last few quarters can be attributed to the growing adoption of Apple Music and Spotify. Moreover, closure of operations in Australia and New Zealand has been a dampener.

The platform’s total active user base at the end of March was 72 million compared with 76.7 million in the year-ago period. We believe that in order to attract/retain subscribers, the company should also seek opportunities to expand its music library.

Battle for Dominance Intensifies

Spotify has been leading the music streaming market for a long time. However, the gap seems to be narrowing with Apple Music recording phenomenal growth lately.

Apple Music boasts 50 million subscribers including paid as well as free trial subscribers, announced CEO Tim Cook recently. In April, Variety reported that the company reached 40 million paid subscribers.

Currently, Spotify has 75 million paid subscribers. In February, The Wall Street Journal reported that Apple Music's growth rate in the United States is more than double of Spotify. If the rate sustains, Apple will trump Spotify by this summer.

Notably, Apple Music is available in 114 counties, while Spotify is available in just 60.

In December, Amazon.com announced the expansion of its Music Unlimited service in 28 countries. In February, the company expanded Amazon Music service to Australia and New Zealand, the only two international markets where Pandora earlier operated.

Moreover, in order to make the service more appealing, Amazon loaded the smart speakers with a regional version of Alexa, featuring Australian and New Zealand accent.

Considering Apple and Amazon’s massive cash resources, it is not difficult for the companies to expand rapidly in newer markets. Besides, Google’s rollout of YouTube-based music-streaming service will intensify competition further.

Zack Rank

Pandora, Apple, Alphabet and Spotify currently carry a Zack Rank #3 (Hold), while Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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