Pandora (P) Gets $480M From SiriusXM, Concedes 3 Board Seats

Online music streaming company, Pandora Inc (NYSE:P) announced that it has received $480 million as investment from SiriusXM Holdings (NASDAQ:SIRI) .

It has long been speculated that Sirius is interested in acquiring Pandora. The rumors may as well come true since the investment gives Sirius about 19% stake in the company as well as three board seats, including that of the chairman, add media reports. Pandora’s board has now been expanded to nine members.

SiriusXM will no longer to be able to purchase any more Pandora stock in the next 18 months. Also, SiriusXM has agreed to the terms, which restrict it from buying more than 31.5% of Pandora's stock without the approval of Pandora's board of directors.

Sirius CEO, Jim Meyer said in a statement "This strategic investment in Pandora represents a unique opportunity for SiriusXM to create value for its stockholders by investing in the leader in the ad-supported digital radio business, a space where SiriusXM does not play today. Pandora's large user base and its ability to provide listeners with a personalized music experience are tremendous assets.”

Meanwhile Liberty Media Corporation (NASDAQ:FWONA), parent company of the SiriusXM, stated “Liberty Media has long recognized the strength of the Pandora brand and the opportunities in the ad-supported digital radio market. We are very supportive of SiriusXM's strategic investment."

Following this, Pandora will have to shell out $22.5 million as termination fees to investment firm, KKR. On May 8, 2017, along with its first-quarter 2017 earnings, Pandora had announced that KKR is willing to invest $150 million in exchange for convertible preferred stock and a board seat. Back then, Pandora had a month to shop itself. If it emerged successful, the new owners could choose not to take KKR’s money, in which case they would have to pay fees to terminate the deal. And so seems the case.

Apart from the investment news, Pandora also announced that it will be selling Ticketfly to Eventbrite for $200 million. The transaction is likely to conclude in the third quarter of 2017. Also, both the companies have inked a ticket-distribution agreement, which, as per Pandora, “is the best approach to ticketing, leveraging audience scale and targeting while minimizing the operational commitment.” In Oct 2015, Pandora had acquired Ticketfly for $450 million.

On a separate note, the company reiterated its second-quarter 2017 guidance. For the aforementioned quarter, revenues are expected in the range of $360–$375 million. The company expects adjusted EBITDA loss in the range of $50–$65 million.

Despite the fact that Pandora holds a prime position in the online radio market, the company has been struggling with profitability. Further, rising costs related to licensing, footprint expansion and higher operating expenses add to its woes.

Pandora has taken strategic measures to post a turnaround. Last year, the company announced two new services – Pandora Plus and Pandora Premium. While Plus is a “one-of-a-kind, ad-free radio experience” available for $4.99 per month, Premium creates a playlist for users based on their playlist history, which, as CEO Tim Westengren was quoted saying, is its “standout” factor. It will be ad free and will enable users to save songs for offline listening. Pandora Premium carries a price tag of $10. However, analysts have observed that the company’s new services don’t offer something radically different from what is already available in the market.

As part of its strategy, Pandora also acquired companies like Next Big Sound and Rdio, along with cutting label deals to reduce dependence on CRB rates and better manage its content costs. Moreover, the company has struck licensing deals with Sony Music, Warner Brothers, a unit of Time Warner (TWX) and Universal Music Group. Recently, to lower costs, Pandora announced a 7% cut in its workforce.

Though these initiatives appear to be headed in the right direction, analysts observe stiffening competition from the likes of Spotify, Tidal and Amazon (NASDAQ:AMZN) as a very powerful threat. Pandora’s entry has been pretty late in the on-demand music services arena, which boasts big names like Spotify and Apple Inc. (NYSE:P) .

In fact, Apple Music has seen phenomenal growth. Within two year of its existence, Apple Music has reportedly amassed over 27 million paid subscribers, inching closer to Spotify’s 50 million paid subscribers. Apple Music’s collaborations with popular music artists like Taylor Swift and many more have been widely considered by analysts as the key to its success. We note that Pandora’s shares have declined 24.13% in the last year, underperforming the Zacks categorized Internet Services industry, which gained 22.85%.

Presently, Pandora carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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