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Pandora pampered with $150m injection to entice buyer

Troubled US internet radio company Pandora is finally preparing for a takeover after posting results for another loss-making quarter, over a year since vultures began circling. Pandora has received a $150 million investment injection from private equity firm KKR this week – to balance the books in the hope that a fitting bidder will swoop in.

Liberty Media’s SiriusXM has long been the front runner to acquire Pandora, and there were heavy rumors from inside sources that SiriusXM placed a $3.4 billion offer on the table last year, when Pandora’s market cap was $3 billion. Fast forward to this week, Pandora’s market cap sits at around $2.6 billion, but the company’s share price is up slightly following KKR’s cash – which may pave the way for a slightly higher offer.

Let’s say SiriusXM, or another potential bidder, goes ahead with a $4 billion offer to acquire Pandora and its 76.7 million active listeners, that would work out at paying just over $52 per user – which sounds like a rather good deal to us. But Pandora’s loyal user base – the world’s largest for a digital radio service – is gradually slipping, losing 2.7 million in a year, amid mounting pressure from Spotify, Apple and Amazon.

In a bid to fight back, Pandora launched its on-demand subscription service Pandora Premium in March this year, priced at $10 a month. Pandora hasn’t published subscriber figures for Premium in its latest set of results, but says that 500,000 Premium trials were started in the last seven weeks.

Perhaps a fraction of Pandora’s lost 2.7 million users have been converted to the paid subscription tier, and it will be looking to convert as many as possible in the coming year without cannibalizing its ad-supported tier to oblivion, as advertising accounted for over 70% of Pandora’s revenue in Q1 this year.

Pandora recorded a net loss of $132.3 million for the first quarter of 2017, rising from $132.3 million in Q1 last year, despite growing revenues by 6.8% to $316 million for the quarter.

We can see Pandora being swallowed up to become part of a much bigger global organization. If anyone can turn the business around, it’s John Malone, whose empire has a major hand in both of Pandora’s key business areas – music streaming and ticketing. While Pandora makes a perfect fit for SiriusXM, its ticketing operations could be merged with Live Nation, which is 34.3% owned by Liberty Media.

It’s worth noting that SirusXM itself is in a fight to escape the clutches of Liberty Media which helped it out with cash that converted to a 40% shareholding back in 2009, when Dish Network was stalking the company. Liberty Media holds a 66% stake in SiriusXM today, and as the radio firm continues to publish record financial results, this might push Pandora’s asking price a little higher still.

The company says a sale is one of several strategies currently being weighed up and more will become clear in the next 30 days or so, following a shake-up of board members. Richard Sarnoff, KKR’s Head of Media & Communications, will join Pandora’s board of directors in place of two departing members.

Pandora has projected revenue for the next quarter in the range of $360 million and $375 million, and expects full year revenue to come in between $1.5 billion and $1.65 billion.

Pandora CFO Naveen Chopra, fresh from being a kind of interim CEO at TiVo through the sale to Rovi, said, “we are happy to be partnering with KKR on this investment. A strong balance sheet gives us the ability to accelerate growth investments when appropriate and to compete aggressively in a rapidly changing, complex market.”

New board member Sarnoff commented, “a true pioneer in digital music, we believe that Pandora is uniquely positioned over the long term given the sheer size of its user base, the quality of its new subscription services and the fact that it has created one of the few scaled streaming media businesses in the US. The launch of Pandora Premium is yet another example of innovation at a company that created the modern-day music recommendation engine. And we believe that the next few years should be transformational for the company.”

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