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Sirius XM (SIRI) Set to Acquire Pandora for $3.5 Billion
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Sirius XM Holdings (SIRI - Free Report) is set to acquire Pandora Media in an all-stock deal worth $3.5 billion. The deal brings together Sirius XM’s 36 million subscribers across North America and Pandora’s 71.4 million monthly active users (MAUs), thereby creating the world’s largest audio entertainment company.
Notably, in June 2017, Sirius XM made strategic cash investment of $480 million in the music streaming service, after Pandora rejected its buyout offer. The satellite radio provider currently has approximately 15% stake in Pandora.
The current deal values Pandora’s shares at $10.14 per share, representing a premium of 13.8% over a 30-day volume-weighted average price. Pandora’s shareholders will receive a fixed exchange ratio of 1.44 newly issued Sirius XM shares for each share they hold.
The combined entity is now expected to generate estimated pro-forma revenues of more than $7 billion for 2018. The transaction is expected to close in the first quarter of 2019.
What the Deal Holds for Sirius XM
Sirius XM’s shares are down more than 5% in pre-market trading. The stock returned 26.9% in the past year, underperforming the Zacks Broadcast Radio and Television industry’s rally of 35.7%.
The sell-off apparently reflects investors’ concern about overpaying for Pandora’s assets. Also, Sirius XM’s entry into the intensely competitive music streaming market, currently dominated by the likes of Spotify (SPOT - Free Report) and Apple (AAPL - Free Report) , is a significant headwind. Currently, these two dominate nearly 80% of the total domestic music streaming market.
According to MIDiA research company, Apple Music’s global share increased 2% in the first half of 2018, reaching 19% of total global streamers. Apple, at present, has 43.5 million subscribers globally. Spotify on the other hand holds 36% of global share, comprising 83 million subscribers.
Pandora’s scrappy execution history is a concern amid severe competition. Despite having a sizeable user base, total listener hours fell 2.5% year over year and MAUs also declined in the last reported quarter. Moreover, increasing licensing cost per subscriber is a concern.
However, strong growth in Pandora’s premium subscriber base reflected by higher average revenue per paid subscribers (ARPUs) presents growth opportunities for Sirius XM. The deal will expand Sirius XM’s total addressable market (TAM) beyond automobiles into the home and mobile, thereby reducing dependence on new car sales.
Moreover, Pandora’s ad-supported business model and brand value are expected to boost Sirius XM’s top-line growth in the long haul.
Sirius XM Reiterates 2018 Guidance
Sirius XM reiterated its 2018 guidance. Revenues are still expected to be more than $5.7 billion, while adjusted EBITDA is expected to be roughly $2.175 billion. The company anticipates an addition of almost 1.15 million self-pay net subscribers.
Free cash flow is expected to be around $1.5 billion.
Apart from the Pandora deal, Sirius XM is expected to benefit from its partnership with Netflix (NFLX - Free Report) . Reportedly, Sirius XM will play a 24 hour commercial free comedy channel, tentatively called Netflix Is a Joke. The channel, which is expected to be available by January 2019, will include current and original content of Netflix’s vast collection of comedy content.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Sirius XM (SIRI) Set to Acquire Pandora for $3.5 Billion
Sirius XM Holdings (SIRI - Free Report) is set to acquire Pandora Media in an all-stock deal worth $3.5 billion. The deal brings together Sirius XM’s 36 million subscribers across North America and Pandora’s 71.4 million monthly active users (MAUs), thereby creating the world’s largest audio entertainment company.
Notably, in June 2017, Sirius XM made strategic cash investment of $480 million in the music streaming service, after Pandora rejected its buyout offer. The satellite radio provider currently has approximately 15% stake in Pandora.
The current deal values Pandora’s shares at $10.14 per share, representing a premium of 13.8% over a 30-day volume-weighted average price. Pandora’s shareholders will receive a fixed exchange ratio of 1.44 newly issued Sirius XM shares for each share they hold.
The combined entity is now expected to generate estimated pro-forma revenues of more than $7 billion for 2018. The transaction is expected to close in the first quarter of 2019.
What the Deal Holds for Sirius XM
Sirius XM’s shares are down more than 5% in pre-market trading. The stock returned 26.9% in the past year, underperforming the Zacks Broadcast Radio and Television industry’s rally of 35.7%.
The sell-off apparently reflects investors’ concern about overpaying for Pandora’s assets. Also, Sirius XM’s entry into the intensely competitive music streaming market, currently dominated by the likes of Spotify (SPOT - Free Report) and Apple (AAPL - Free Report) , is a significant headwind. Currently, these two dominate nearly 80% of the total domestic music streaming market.
According to MIDiA research company, Apple Music’s global share increased 2% in the first half of 2018, reaching 19% of total global streamers. Apple, at present, has 43.5 million subscribers globally. Spotify on the other hand holds 36% of global share, comprising 83 million subscribers.
Pandora’s scrappy execution history is a concern amid severe competition. Despite having a sizeable user base, total listener hours fell 2.5% year over year and MAUs also declined in the last reported quarter. Moreover, increasing licensing cost per subscriber is a concern.
However, strong growth in Pandora’s premium subscriber base reflected by higher average revenue per paid subscribers (ARPUs) presents growth opportunities for Sirius XM. The deal will expand Sirius XM’s total addressable market (TAM) beyond automobiles into the home and mobile, thereby reducing dependence on new car sales.
Moreover, Pandora’s ad-supported business model and brand value are expected to boost Sirius XM’s top-line growth in the long haul.
Sirius XM Reiterates 2018 Guidance
Sirius XM reiterated its 2018 guidance. Revenues are still expected to be more than $5.7 billion, while adjusted EBITDA is expected to be roughly $2.175 billion. The company anticipates an addition of almost 1.15 million self-pay net subscribers.
Free cash flow is expected to be around $1.5 billion.
Apart from the Pandora deal, Sirius XM is expected to benefit from its partnership with Netflix (NFLX - Free Report) . Reportedly, Sirius XM will play a 24 hour commercial free comedy channel, tentatively called Netflix Is a Joke. The channel, which is expected to be available by January 2019, will include current and original content of Netflix’s vast collection of comedy content.
Both Sirius XM and Pandora carry 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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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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