Is Apple a Real Threat to Pandora?

Mario Tama / Getty Images

Source: Mario Tama / Getty Images

Last May, actor and rhythm and blues singer Tyrese Gibson posted a somewhat bizarre video onto his Facebook (NASDAQ:FB) page. The lede into the video simply stated “Apple = Beats $3.2 billion.” From there, the action cut away to Tyrese dancing and yukking it up, while rapper Andre Young, aka Dr. Dre, boisterously pointed at the camera. The video unwittingly announced that Apple was set to acquire Beats By Dre. Various copies of the clip were to appear on YouTube, after Tyrese removed the post from his Facebook page. The Facebook post may have been in violation of SEC Regulation Fair Disclosure. SEC Regulation FD stipulates that all pertinent information must be disclosed to all shareholders simultaneously.

On May 28, 2014, Apple (NASDAQ:AAPL) did issue a press release that confirmed it was set to acquire Beats Music and Beats Electronics for $3 billion. The $3 billion Beats deal actually broke down further into $2.6 billion in up-front cash and $400 million in stock options, which will vest over the next four years. Beats co-founders Dr. Dre and Jimmy Iovine both agreed to stay on at Apple, as part of the arrangement. Iovine, of course, is also the chairman of Interscope Geffen A&M and a celebrated music industry insider. Going forward, Apple’s increasingly aggressive forays into digital music now threaten to undermine the Pandora (NYSE:P) business model. Pandora may be an example of a Web 2.0 bubble stock.

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Today, Apple may be most notable for its dominance above mobile. Successive reports out of both comScore and International Data Corporation have identified Apple and Samsung as leading handset and tablet manufacturers, according to market share and units sold. Apple closed out its latest 2013 fiscal year having generated $170.9 billion in revenue. Of this amount, the iPhone and iPad accounted for a respective $91.3 billion and $32 billion in 2013 total net sales. For the sake of comparison, the iPod tallied a mere $4.4 billion in 2013 operating segment revenue, which was a 21 percent decline off the prior year. For 2005, the iPod platform generated $4.5 billion, or 32.3 percent, of $13.9 billion in Apple total net sales. In effect, Steve Jobs leveraged his love of music to launch the remarkable turnaround of Apple.