Shares of online radio service Pandora Inc. fell Tuesday after an analyst pointed out that upstart music app Songza had become one of Apple's most downloaded free apps.
THE SPARK: BTIG analyst Rich Greenfield said in a research note Tuesday that "Pandora investors should be concerned" at Songza's success. The Long Island City, New York-based company's free app comes without audio ads that interrupt listening. Songza generates playlists based on a few questions about what the user is doing and one's mood.
Greenfield pointed out that in a rapidly changing technological world, it is easy for leaders in a category to be unseated by newcomers.
"Success can go faster than it comes," Greenfield wrote.
THE BIG PICTURE: Online radio services such as Pandora, Songza and iHeart Radio give users a randomized playlist of songs based on genres, moods or similar-sounding artists. They make money through advertisements but must pay royalties to performers and songwriters.
Pandora is the only one of those companies that trades publicly. It said last month that its first-quarter loss tripled as the cost of acquiring music and marketing rose faster than revenue.
THE ANALYSIS: While he did not examine the sustainability of Songza's business model -- based on display ads at the bottom of the screen -- Greenfield said the playing field in the category is leveling out.
Given its most recent disclosures, Pandora has the lead among free online radio services in the U.S. It said in May that listeners logged more than a billion hours of listening per month in the first quarter. In comparison, iHeart Radio users logged about 65 million hours a month toward the end of last year.
SHARE ACTION: Pandora fell 42 cents, or 3.8 percent, to $10.73 in afternoon trading. That's down from its highest close of $20.04 last July and its initial public offering price of $16 in June last year.