Pandora's shares sank $2.30, or 18%, at $10.27, while technology giant Apple gained $3.86, or 0.6%, to $680.13, putting it on track for another record high. Pandora went public last year at $16 a share.
Pandora's streaming-radio service, through which customers can build their own radio stations using their music preferences, has made it one of the few companies to enjoy lasting popularity in online music streaming. It has 54.9 million active users, far more than its peers. Apple is expected to be a formidable competitor in the area, since it has a large presence in online music sales with its iTunes store.
Pandora's service is offered on an application for iPhones and other Apple products. Apple's service would run on its hardware, and possibly on personal computers running Windows operating systems, The Wall Street Journal reported. The technology heavyweight only recently started discussions with companies to get licensing rights to music for the service, so it could be a matter of months before the service is launched, the report said.
"Pandora is not going to trade well today," wrote Richard Tullo, an analyst with Albert Fried & Co., in a note to clients ahead of the market opening, pointing out that Apple could provide a custom-radio service for a lower cost to the consumer.
Mr. Tullo estimated in his note that the launch is at least six months away. Even with the new challenges facing Pandora, he thinks the service will survive. He doesn't cover Apple as an analyst but rates Pandora shares at overweight—the equivalent of "buy."
"Rolling out these services is a challenge, and we think Pandora will compete," he said. "Looking at the bigger picture, Apple's move validates Pandora's business model."
Originally reported on the The Wall Street Journal Online.