Is Pandora looking for a buyer?
Pandora Media, the largest Internet radio service, has held discussions about selling the company, according to people briefed on the talks. Pandora is working with to meet with potential buyers, said the people, who spoke on condition of anonymity. The talks are preliminary and may not lead to a deal, the people said.
For Pandora, it would be a curious time to sell. Its shares are yielding a market value of $1.8 billion, down from more than $7 billion two years ago. The stock has fallen more than 60 percent since October.
Pandora has the largest number of users for music streaming, but the competition is encroaching. Spotify is said to be arming itself with another $500 million in capital, and Apple Music recently surpassed 10 million paying users. Pandora’s users peaked at 81.5 million at the end of 2014, and, after falling to about 78 million in the third quarter of 2015, ended the year with 81.1 million.
The company is spending heavily to attract users, and its ability to make money from those users may be waning. In the third quarter, Pandora lowered its full-year financial guidance, expecting its adjusted earnings to be $51 million to $56 million, down from the $75 million to $85 million it projected in the quarter before.
“It has lots of users but can’t grow revenue quickly enough,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. “It is another stumbling pioneer.”
In its financial results, which Pandora announced Thursday afternoon, the company had $336 million in revenue in the fourth quarter, but spent $143 million in “content acquisition costs,” which includes music licenses, and $112.6 million on sales and marketing. For the quarter, the company reported a net loss of $19.4 million, in contrast to $12.3 million in net earnings for the same period the year before.
For all of 2015, Pandora had $1.16 billion in revenue, up from $921 million the year before. But the company also reported a net loss for the year of $169.7 million, which included $111.6 million in stock-based compensation and nearly $58 million to settle a royalty dispute with the music industry over recordings made before 1972.
Although Pandora’s stock closed at $9.09 for the day, up 8.2 percent, it dropped about 8 percent in after-hours trading on the news of Pandora’s financial results.
“Pandora hasn’t managed to create a compelling story for Wall Street,” said Mark Mulligan, a digital media analyst with Midia Research. “Every year it is progressively stealing more of total radio listening time, but the street expects a dynamic growth story to accompany a streaming media company.”
Representatives from Pandora and Morgan Stanley declined to comment. Brian P. McAndrews, Pandora’s chief executive, is a director at The New York Times Company.
Pandora was introduced in 2005 and uses its own “music genome” technology to analyze its customers’ musical tastes and feed them a radiolike stream tailored to what they like.
On Feb. 11, 2011 — exactly five years ago — Pandora filed its prospectus for an initial public offering. The shares started trading on June 15 of that year, priced at $16 apiece, or 43 percent higher than the stock’s close on Thursday.
The company generates 80 percent of its revenue from advertising, allowing listeners to stream music free, with ads after every few songs. Pandora also has about 3.9 million customers who pay $5 a month to remove the ads.
Last year, Pandora announced deals to pay $450 million for Ticketfly, an online ticketing company, and $75 million for the assets of Rdio, a struggling competitor.
Executives at Pandora, whose service is available only in the United States, Australia and New Zealand, have said that they want to expand around the world and turn Pandora into a more robust service that can compete with so-called on-demand outlets like Spotify, Rhapsody and Apple Music, which let users choose exactly what songs to listen to.
Some analysts, however, are skeptical of Pandora’s ability to move into new markets and become profitable.
“They are realizing they they’re late in the fourth quarter,” said Richard Greenfield, a media analyst at BTIG Research, when asked about Pandora’s possible sale, “and they have to throw a Hail Mary pass.”
Source: NY Times
