It takes a lot of faith to invest in Pandora Media (NYSE:P). At the current price around $12.40 per share (as of late Monday morning), investors are betting not only that the streaming music player will grow earnings exponentially over the next few years, but also that the market will pay a premium valuation even after tremendous growth has been achieved.

As a pioneer in its industry, Pandora quickly became the number one streaming music service, with the largest subscriber base. At the end of the third quarter, the company boasted 78.1 million active users with more than five billion hours of streaming music played during the quarter.

But first place can be fleeting. After launching Apple (NASDAQ:AAPL) Music this year, Apple reported a total of 15 million listeners and 6.5 million paid subscribers. That’s after only a few months of sales, versus Pandora’s headstart spanning 10 years (Pandora Radio was released in 2005).

Spotify (Private:MUSIC) represents a more direct competitor focused exclusively on streaming music. The private company recently reported 75 million active listeners, putting it within striking distance of overtaking Pandora’s lead.

These figures are especially sobering when taking into account the fact that Pandora’s number of active listeners actually decreased slightly in the third quarter. CEO Brian McAndrews was quick to note that challenges in the quarter were unique, and that the number of listeners was affected by the launch of Apple Music:

These figures are especially sobering when taking into account the fact that Pandora's number of active listeners actually decreased slightly in the third quarter. CEO Brian McAndrews was quick to note that challenges in the quarter were unique, and that the number of listeners was affected by the launch of Apple Music:

In a quarter where a large new entrant came into the music streaming landscape and over a hundred million dollars in combined marketing was spent across the sector to drive awareness of a multitude of offerings, Pandora more than held its own for users and hours growth ...

McAndrews' use of the word "growth" is interesting given the contraction in both number of active listeners as well as a quarterly decline in number of hours of streaming music. Investors are left to wonder if Apple Music will continue to eat into Pandora's customer base as the new platform increases in popularity.

As Pandora's leading position in the streaming music business erodes, investors face significant risks of a decline this year. Unfortunately, there are few potential bullish catalysts to counterbalance the risk. Even if Pandora executes extremely well in 2016, it is unlikely investors will capture much of a positive return. At least not enough of a return to compensate them for the significant risk they are taking.

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