by , 3:15 PM EDT, May 11th, 2005

A drop is Apple's stock should be seen as a buying opportunity, according to a Wall Street analyst. Apple's stock dropped more than 5% in Wednesday morning trading on worries that its iTunes Music Store could lose market share at the hands of Yahoo!'s entry into the market, but in a research note to clients obtained by The Mac Observer, Piper Jaffray's Gene Munster said that he believes Apple will maintain its market share. The real danger to Apple, according to Mr. Munster, is a hot new MP3 player, and not yet-another-music-service.

At issue is the announcement of a beta subscription music service from Internet giant Yahoo!, which the company introduced Wednesday morning. The service is being launched with a yearly subscription fee of US$59.98 that allows people to rent as much music as they want, and take it with them on any digital media device that supports Microsoft's Windows Media digital rights management (DRM) scheme.

That price significantly undercuts Napster's Napster-To-Go and RealNetworks' subscription services, the two leaders in the music rental business, and the markets reacted to the news in a mixed fashion. The result was a 5% drop in Apple's stock in Wednesday morning trading (AAPL recovered some of those losses, trading down 3% in the afternoon session), and Piper Jaffray was fast out of the blocks with buying advice for its customers.

"We view the pull-back in shares of AAPL as a buying opportunity," wrote Mr. Munster, "given we do not anticipate the market share of the iPod will be meaningfully impacted by the emergence of Yahoo! and other music subscription services."

He also told clients that he believed Apple would introduce its own music service by the end of 2005 if the rental business model should prove successful.

More importantly, however, Mr. Munster told clients that the real threat to Apple's dominance in the online music business is not another music service, but rather the emergence of killer MP3 player.

"Despite new music services in the past year, Apple has maintained its ~80% market share in the portable audio device market," wrote Mr. Munster. "In other words, the risk to Apple is a killer new MP3 player, not a new online music service."

Lastly, Mr. Munster said that the iPod is not Apple's only potential growth avenue, as he expects the iPod Halo Effect to continue to bring new customers to Apple's other product lines, including the Mac. He backed that up by pointing to Apple's increased Mac sales during the March quarter.

Mr. Munster maintained his "Outperform" rating on AAPL, as well as his $52 price target on the stock.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.