Pandora Media shares plunged on Friday after reports said Apple is in talks to license music to create a rival online radio service.
Shares of Pandora, the largest internet radio operator, slid 16.8 percent to close at $10.46.
The Wall Street Journal and The New York Times reported that Apple was studying a launch of a streaming music service which could be pre-installed on its popular iPhone and iPad devices.
Analyst Nat Schindler at Bank of America Merrill Lynch said Apple's move could shake up the sector.
"Apple is currently the largest music retailer in the world and the move is likely being made to unseat rapidly growing streaming competitors like Pandora and Spotify," he said in a note to clients, but adding that the technology giant appears to be "going after Spotify and not Pandora".
Pandora, however, could be hurt if Apple promotes its own service on its devices, according to Schindler.
"Pandora, currently has 72 percent-plus market share of online radio and six percent share of the total radio market, partially due to its near ubiquitous device reach on over 400 different devices," he said.
"Apple's large device installed base makes it a more serious threat than other current or potential competitors. Pandora we believe gets 40-50 percent of its total usage currently from iOS devices."
Shawn Rassouli at Canaccord Genuity said he sees no imminent danger to Pandora, and that the news could end up helping the internet radio firm.
"We believe it would be difficult for Apple to create a profitable service in the short term, given the high content costs that are associated with offering such service," he said in a note to clients.
Rassouli said Pandora remains the market leader and if Apple does enter the market, "it would likely continue to invigorate the mobile advertising market... We believe this would be a positive for Pandora."
The Journal noted that Apple had previously weighed launching a Pandora competitor, but dropped the bid due to licensing costs.
Pandora reported last week that its revenue climbed in the recently-ended quarter but that it still lost money due in large part to royalties paid out for songs.
The Oakland, California-based firm, which creates personalised radio stations for users, reported a net loss of $5.4-million on revenue that rose 51 percent to $101.3-million, compared with the same period last year.
Pandora went public last year at $16 a share, one of several internet companies to make their debut on Wall Street in 2011.