Shares of Internet radio giant Pandora Media took a big hit Friday as investors absorbed news that Apple is planning - merely planning, mind you - an Internet radio service. After closing at $12.57 on Thursday, Pandora shares opened down 19.4% at $10.53 and fell as low as $9.95 - a loss of 20.8% -- before flattening out and ended the day down 16.7% at $10.47.
The news of Apple's pending competing service wiped out $354.6 million of market capitalization and nearly erased the gains Pandora made late last month. Pandora's August 29 earnings report raised its fiscal year 2013 guidance and boasted of mobile gains in its latest fiscal quarter. The company's shares soared from a low of $9.87 on August 29 - the earnings report was released at the end of the day - to a high of $12.43 on August 30 as a handful of suddenly optimistic analysts upgraded their ratings.
Nearly $400 million is a lot of market capitalization to lose on speculation that Apple is planning on entering your turf. Not yet known are details about the markets in which Apple and Pandora would compete, although the U.S. is the most obvious starting point for any new Apple digital music service. Pandora quietly expanded to Australia and New Zealand in August.
Apple added $4.5 billion in market cap by midday Friday, but that didn't necessarily haven anything to do with investor optimism about its plans for an Internet radio service. Apple shares hit an all-time high of $681.50 on multiple news items: a judge said the HTC patents challenged by Apple were probably valid; Apple is cutting Samsung, its chief smartphone competitor, from its iPhone 5 chip suppliers list; and a new lineup of Amazon Kindle Fire tablets.
Apple's all-time high Friday underscores why Pandora investors were so concerned. Normally news of greater competition in the tablet market would be cause for concern, but early reviews of Amazon's upcoming slate of Kindle Fire tablets say Apple should not be too concerned. An analyst for Topeka Capital Markets emphasized that Apple "will continue to dominate the tablet market at the mid-to-high end" while an analyst for the ISI Group sees the upcoming, low-priced iPad Mini "will expand [Apple's] addressable market opportunity."