There’s much industry speculation regarding what SiriusXM Radio’s investment in Pandora Media will mean for both companies. Exactly what will spring from last Thursday’s (June 8) move by the satellite radio operator to make a $480 million cash investment in the web pureplay will start to play out in the coming days, but the talk by experts continues.
SiriusXM will pay $10.50 per share for newly issued preferred Pandora stock, giving the satcaster a 19% stake in the company. Pandora says it will use the cash “to make targeted investments and capitalize on opportunities to build on its position in the streaming radio business.” Separately, Pandora announced its sale of event ticketing service Ticketfly to Eventbrite for $200 million.
Billboard veteran music business reporter Ed Christman posits that foremost, Pandora needed cash, and got it from SiriusXM and the sale of Ticketfly: “That means that the money from the Sirius and Ticketfly deals, coupled with the $199 million that the company disclosed in 2016 year-end report, gives the company a total of $838 million in cash, (which) buys Pandora time to prove it can build a successful, profitable on-demand music service.”
In addition, with the infusion, Billboard optimistically believes that Pandora no longer has to “take risky chances in a hurry to prove that integrating its late-but-necessary on-demand diversification into its existing business model will yield a profitable company,” while maintaining status as an independent company.
Orange Peel Investments is less optimistic, with its story headline “Believe It Or Not, We Still Believe Pandora Can Go Lower.” The investment from SiriusXM—instead of a potentially profitable sale—“furthers our long-standing belief that Pandora has ‘missed the boat’ and still does not make for a good investment vehicle.”
The firm adds that for years, it has “vehemently stood our ground” that Pandora would not be an attractive buyout because of its “deteriorating organic fundamentals (and) significant competition from major players in the space.” Orange Peel predicts that Pandora still faces obstacles with its financials and growth with no “visible roadmap to profitability and consistent growth.” Digging down, the firm says that Pandora did little to effectively compete with Spotify and Apple—and lost its momentum, likely for the long term.
The New York Post—which has closely followed Pandora’s “deal or no deal” saga for months, is also anything but bullish, calling Pandora a struggling radio streamer, and a “money-losing, cash-burning” company.
Foremost, the Post believes Pandora blew its chance to sell at a reasonable profit a year ago, saying that major Pandora shareholder investor Keith Meister, Pandora executives and its board all “bungled” the opportunity to sell the company at $15 per share. “All three misplayed Pandora’s hand — and $1.5 billion in market cap melted away as the company continued to lose money and lose leverage against what truly was its only logical merger partner,” sources told the Post.
With SiriusXM majority owner Liberty Media’s on-and-off discussions to buy Pandora, the Post believes Liberty boss Greg Maffei—who also serves at SiriusXM’s chairman—“continued to circle Pandora, eyeing its 80 million users and the ad technology that supports its service” and that “Maffei played his hand perfectly,” according to one shareholder in the Post story.
For SiriusXM, there appears to be little if no downside. Moody’s weighs in by saying that the $480 million “strategic investment” in Pandora will have no negative impact on existing debt ratings, with a “stable outlook.”
Billboard also believes the satcaster ended up with a fine deal because Pandora offers its advertising structure, which now shows that it can generate both national and local advertising revenues; it has 81 million active users, vs. the Sirius listening base of 31 million subscribers; the diversity of Pandora’s listener demographics, which also includes younger demos in which Sirius is weak; and the possibility of experimenting with more functionality for Sirius’ existing programmed model without going into more expensive, on-demand licensing.
And, Christman adds in the Billboard story that if Pandora comes up for sale again, Liberty Media will hold the edge on valuing the company. “All in all, the deal looks like a win for all three parties (Pandora, SiriusXM and Liberty), and for the music industry, too.”
Barclays also says boffo for SiriusXM, calling it “a smarter way to gain optionality into a market segment Sirius does not have scale in at present,” while SiriusXM can now elect three members to the Pandora board. As well, “we believe the deal is structured in a manner that is likely to be well received by Sirius investors.”