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Pandora (P) Surges on Merger Speculation with Sirius (SIRI)
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Shares of Pandora Media Inc. were up over 16% on Friday after financial news provider, Bloomberg reported that satellite radio company Sirius XM Holdings Inc. (SIRI - Free Report) has made a fresh offer to acquire music streaming services provider. The report was also later confirmed by CNBC, which citing anonymous sources, revealed that Pandora is willing to engage with Sirius on the takeover matter.
This is not the first time that this Internet radio pioneer is a takeover target. According to The Wall Street Journal, back in July, Pandora had received an informal $15 a share takeover offer from Sirius and its majority owner, Liberty Media . However, the company’s management had rejected the offer.
Sources familiar with the current matter are not sure whether Sirius has made any specific price offer. Notably, since the beginning of this year, Pandora has been continuously facing immense pressure from activist investor Corvex Management to sell itself.
Challenges in the Way of Pandora
Pandora, which is yet to report profits, has been struggling to post a turnaround. It has witnessed a substantial slowdown in its subscriber base owing to the aggressive marketing strategy of Apple Inc.’s (AAPL - Free Report) Apple Music and competition from other players like Spotify and Amazon Music. Its total number of active listeners fell to 77.9 million in third-quarter 2016 from 78.1 million in the year-ago quarter.
Furthermore, Pandora’s business model is another reason for its consistent dismal bottom-line performance. As the company provides music streaming services on the Internet, it has to pay hefty music royalties and licensing fees, which makes its operations much more expensive.
Additionally, the Copyright Royalty Board raised the royalty rates by 15% last December. This added to the already high content costs and has been impacting Pandora’s bottom-line results for the last three quarters.
Pandora hasn’t had a great 2016 on the trading front too, largely due to the issues mentioned above. Since the beginning of 2016, the stock has plunged as much as 14.4% before Friday’s gain, compared with the Internet Services industry decline of only 1.8% during the same time frame.
Merger May Turn Things Around
There is no denying the fact that Pandora holds a prime position in the online radio market. But even then the company has been struggling to make profits. Rising costs related to licensing, footprint expansion and higher operating expenses will continue to be a drag on profitability.
Also, competition is intense. The digital music streaming industry is expected to grow rapidly over the next few years, and hence all the players including Pandora, Apple, Spotify, and Amazon are striving to fortify their presence.
So, it will be a challenging task for Pandora to operate as a stand-alone company and turn things around. Therefore, in our opinion, a merger with Sirius may help it in reviving its business.
The combined company will be able to enhance their premium satellite receiver-based offerings. The merger will also enable Pandora to get a bigger foothold in cars and help Sirius to expand its Internet and mobile presence.
However, it will be too early to come to a conclusion as Pandora had rejected Sirius’ earlier offer of $15 a share. So, it will be interesting to see at what price tag Pandora will finally agree to put itself up for sale.
Currently, Pandora carries a Zacks Rank #4 (Sell).
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Pandora (P) Surges on Merger Speculation with Sirius (SIRI)
Shares of Pandora Media Inc. were up over 16% on Friday after financial news provider, Bloomberg reported that satellite radio company Sirius XM Holdings Inc. (SIRI - Free Report) has made a fresh offer to acquire music streaming services provider. The report was also later confirmed by CNBC, which citing anonymous sources, revealed that Pandora is willing to engage with Sirius on the takeover matter.
This is not the first time that this Internet radio pioneer is a takeover target. According to The Wall Street Journal, back in July, Pandora had received an informal $15 a share takeover offer from Sirius and its majority owner, Liberty Media . However, the company’s management had rejected the offer.
Sources familiar with the current matter are not sure whether Sirius has made any specific price offer. Notably, since the beginning of this year, Pandora has been continuously facing immense pressure from activist investor Corvex Management to sell itself.
Challenges in the Way of Pandora
Pandora, which is yet to report profits, has been struggling to post a turnaround. It has witnessed a substantial slowdown in its subscriber base owing to the aggressive marketing strategy of Apple Inc.’s (AAPL - Free Report) Apple Music and competition from other players like Spotify and Amazon Music. Its total number of active listeners fell to 77.9 million in third-quarter 2016 from 78.1 million in the year-ago quarter.
Furthermore, Pandora’s business model is another reason for its consistent dismal bottom-line performance. As the company provides music streaming services on the Internet, it has to pay hefty music royalties and licensing fees, which makes its operations much more expensive.
Additionally, the Copyright Royalty Board raised the royalty rates by 15% last December. This added to the already high content costs and has been impacting Pandora’s bottom-line results for the last three quarters.
Pandora hasn’t had a great 2016 on the trading front too, largely due to the issues mentioned above. Since the beginning of 2016, the stock has plunged as much as 14.4% before Friday’s gain, compared with the Internet Services industry decline of only 1.8% during the same time frame.
Merger May Turn Things Around
There is no denying the fact that Pandora holds a prime position in the online radio market. But even then the company has been struggling to make profits. Rising costs related to licensing, footprint expansion and higher operating expenses will continue to be a drag on profitability.
Also, competition is intense. The digital music streaming industry is expected to grow rapidly over the next few years, and hence all the players including Pandora, Apple, Spotify, and Amazon are striving to fortify their presence.
So, it will be a challenging task for Pandora to operate as a stand-alone company and turn things around. Therefore, in our opinion, a merger with Sirius may help it in reviving its business.
The combined company will be able to enhance their premium satellite receiver-based offerings. The merger will also enable Pandora to get a bigger foothold in cars and help Sirius to expand its Internet and mobile presence.
However, it will be too early to come to a conclusion as Pandora had rejected Sirius’ earlier offer of $15 a share. So, it will be interesting to see at what price tag Pandora will finally agree to put itself up for sale.
Currently, Pandora carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>