• by Mark Walsh  @markfwal, November 15, 2013

When iTunes Radio made its much-anticipated debut in September, many observers wondered whether Apple’s streaming music service would prove a Pandora-killer.
 
So far that hasn’t been the case. Earlier this month, the online radio service released audience metrics for October -- the first full month since the launch of iTunes Radio -- showing that both listener hours and its radio market share continued to grow steadily, although its active users declined 2.6% from the prior month.
 
Given Pandora’s growing market share and expanding sales force, a JP Morgan research note released Friday suggested the company was reaching an “inflection point” in monetization. The report by analyst Doug Anmuth also said Pandora should benefit from its integration into buy-side ad platforms and ultimately from Arbitron measuring Internet radio, “which we believe will accelerate the pace of advertiser migration from terrestrial radio.”
 
For its fiscal third quarter, he projects that Pandora on Thursday (Nov. 21) will report a 51% increase in revenue to $180.9 million, with mobile advertising up 61% to $105.9 million. Total ad revenue will grow 36% to $144.8 million, despite a 4% decline in Web-based advertising as a result of the overwhelming user shift toward mobile listening.
 
JPMorgan retained its “overweight” rating on Pandora, but raised its price target to $35 from $25. That move, in turn, sent the company’s share price soaring 7% to $31.56 on Friday.
 
Wall Street analysts, on average, forecast that Pandora will post earnings of six cents a share on revenue of $174.5 million for the quarter ending Oct. 31.
 
For October, Pandora earlier this month reported that listener hours increased 18% -- the same rate as in September -- for a total of 1.47 billion hours. The online radio service had an 8.06% share of overall U.S. radio listening, up 6.6% from the year-earlier period. That was in line with the 6.5% increase in market share the prior month.
 
When it comes to active listeners, Pandora saw a 20% increase to 70.9 million in October compared to a year ago. But that was down from the 25% gain in September to 72.7 million, suggesting that the rollout of iTunes Radio may have had some impact on monthly user growth.
 
Still, JPMorgan’s Anmuth reiterated in a research note Friday that Pandora has held up well despite the highly publicized arrival of iTunes Radio.
 
“Given the marketing and press around iOS7, along with Apple’s new iPhones, we would expect some trial of iTunes Radio. But we continue to think iTunes Radio is limited in distribution across smartphones (iOS only…not on Android) and it does not provide a compelling reason for users to switch from Pandora,” stated the report.
 
Apple said during its earnings conference call last month that iTunes Radio had reached 20 million users listening to a billon songs since going live with the rollout of iOS 7 in September. The company explained that it had drawn 11 million unique listeners in just the first five days, but it took about five weeks to roughly double that figure.
 
That indicates that the initial surge of users, eager to check out the new service, slowed considerably in the following weeks. Still, it will take more time to see how adoption of the Apple music offering unfolds and whether Pandora’s active user base continues to decline in the coming months.
 
What made Apple’s entrance into the streaming music arena so potentially threatening to Pandora is its installed base of iTunes users and established media and device ecosystem. In the three months leading up to the iTunes Radio launch in September, 67 million consumers had used iTunes in the prior three months, and one in three had downloaded an album or an individual song, according to data from NPD Group .