For Sale: Pandora Internet Radio (Serious Offers Only)

With Losses Out of Control, Will Pandora Radio Finally Be Up For Grabs?
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With Losses Out of Control, Will Pandora Radio Finally Be Up For Grabs?
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Steven Toomey (CC by 2.0)

In the past two years, you’ve lost nearly $750 million.  Yet, you don’t want to sell your company for less than $20 a share.  Now, after receiving $150 million against losses of $133 million, you’ll consider a “strategic review.”  What exactly is Pandora Radio doing?

In an interview with CNBC’s Squawk Alley months ago, Pandora CEO Tim Westergren said that the company has now reached an unchallenged position in the streaming market.  Despite numbers showing the contrary, he remained confident in his company’s ability to turn a profit.

Westergren says that Pandora Premium will become the true premium streaming product in the market.  But does Westergren’s current plan to earn a profit include losing nearly three-quarters of a billion dollars in just over two years?

Despite Westergren’s optimistic outlook, here are some cold hard facts about the company:

1.  In 2015, Pandora Radio lost $169.7 million.

2.  Losses more than doubled in 2016 to $343 million.

3. Liberty Media, parent company of SiriusXM, walked away from acquisition talks. The reason?  Pandora wanted $20 a share. Liberty Media offered $15 a share.

4.  The company currently trades at $9.88 a share.  In 2014, it traded a $29.30.

5.  Young people have abandoned the service at an alarming rate.  Spotify has picked up these users.

6.  After 17 years in the market, 81 million users actively use Pandora.  Spotify counts over 100 million after ten years.

7.  Out of those 81 million active users, less than 6% pay for a subscription.  Apple Music recently reached 20 million in less than 2 years in the market.

8.  Pandora Premium has features already introduced by rivals Spotify and Apple Music.

So, where does Westergren’s confidence come from?

Adding to the company’s woes, Pandora shared less-than-stellar financial results on Monday.  For the first quarter of 2017, total paid subscriptions grew 20% year-over-year to 4.71 million.  However, the company only earned $316 million revenue.  Analysts expected $318 million.

That said, it now looks like Pandora is trying to sell itself.  According to sources to CNBC, that acquisition might happen within the next 30 days.

Currently, the financial picture is anything-but-rosy.

GAAP net loss reached $132.3 million compared to last year’s $115.1 million.  It reported an adjusted EBITDA loss of $71.3 million against last year’s $57.4 million.  Pandora Radio losses have now reached $645 million in slightly over two years.  The company ended with just $203 million in cash and investments, down $40 million from the start of the year.   It had $383 million a year ago.

How will that help Westergren’s optimism in the company’s ability to continue operating?  Well, now there’s a blast of oxygen. Pandora Radio agreed to take a $150 million investment from private equity firm KKR, part of the rumored exit process.

Here’s a breakdown of KKR’s investment.

“KKR will purchase an aggregate of $150 million in a new designated Series A convertible preferred stock of Pandora. Pandora will pay dividends to the holders of the preferred stock quarterly at an annualized rate of 7.5% if paid in cash or 8% if paid in kind, at its option. The Series A preferred stock is convertible into common stock, cash or a combination thereof at a conversion price of $13.50 per share. The offering may be upsized to a total of $250 million should the Company determine to issue additional shares.”

KKR’s co-head of Media and Communications Richard Sarnoff spoke about the $150 million investment.  Clearly avoiding Pandora’s poor financials, Sarnoff praised the company for its innovations.

“We are excited to support the long-term growth of Pandora with this investment.

“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.

With losses spiraling out of control, and its cash pool shrinking, Pandora Radio has reached a desperate position.  However, instead of outright selling itself, Pandora Radio only told investors that it would undertake a “strategic review.”  The review would allow Pandora executives to consider whether it will sell itself to a buyer.

With acquisitions talks abandoned by Liberty Media, and losses mounting, the burning question in investors’ minds remains:  Will anyone pick up the pieces of this failing streaming company?

Maybe we’ll find out over the next 30 days.

Stay tuned.

3 Responses

  1. Nick

    “After 17 years in the market, 81 million users actively use Pandora. Spotify counts over 100 million after ten years.”

    Spotify is also in over 50 countries, while Pandora is in 3.

    500k subscribers in 30 days could be better, but at this rate they’ll meet their goal of 6 million subscribers after 1 year.

  2. Pete

    I think you omitted the fact that Pandora is found in the U.S. while Spotify is global. If Pandora goes global there is reason for optimism.

    • Daniel Adrian Sanchez

      So far, if in the US, they’re hurting, and no plans have been introduced so far after seventeen years, I have yet to see an inclination into their plans for launching globally nor the financial backing to prove otherwise. Besides, internationally, as Spotify and Apple Music are already dominating, how would Pandora Radio prove a serious contender for the average international consumer?