SiriusXM Acquires Pandora Radio For $3.5 Billion

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SiriusXM’s Pandora acquisition could potentially open up new and unique opportunities for both artists and listeners.

Looks like SiriusXM has finally purchased Pandora Radio.

The $3.5 billion all-stock deal values Pandora at $10.14, 12% higher than its closing price on Friday.

A deal years in the making.

In 2015, Pandora Radio reported a heavy loss of $170 million.  That number more than doubled to $343 million a year later.

In short, the company was in a terrible position.

John Malone appeared, ready to swoop in and save the company.  There was just one problem – founder and former CEO Tim Westergren.

In 2017, Westergren vowed to turn Pandora Radio into a profitable company.  He didn’t.  After he refused to sell the company at $15 a share, John Malone and SiriusXM walked away from acquisition talks, calling Pandora “overvalued.”

The company didn’t fare well after SiriusXM walked away from acquisition talks.  Pandora’s stock fell below $8, a historic low for the company.  A study revealed teenagers and young adults had abandoned Westergren’s digital radio service in favor of Spotify.  To recover some desperately-needed cash, the company sold Ticketfly to Eventbrite for $200 million, just a little over a year after acquiring it for $450 million.

Then, after SiriusXM made a strategic investment in Pandora Radio for $480 million, Westergren’s fate was sealed.  After John Malone’s company added 3 members to Pandora’s Board of Directors, Tim Westergren stepped down.

Why Pandora needs SiriusXM.

Under Roger Lynch, the former CEO of Sling TV, things have only slightly improved at Pandora.

In the first quarter of 2018, Pandora posted better-than-expected financial results.  The company’s total subscription revenue skyrocketed 61.3% to $104.7 million.

Yet, looking closer, key metrics – including listener engagement – have plummeted.  At the end of Q1 2018, the digital radio service had 72.3 million active listeners.  During the same period last year, it had 76.7 million.  Total listener hours also fell nearly 5% year-over-year to 4.96 billion.

In the second quarter of 2018, Pandora reported $384.8 million in revenue, a 12% increase year-over-year.  Advertiser revenue per minute also reached $68.75, a new high for the company.

Yet, listening hours and active users continue to plummet.  Pandora had 71.4 million active users, down from 76 million year-over-year, and 5.09 billion listening hours, down from 5.22 billion last year.  The company now has 6 million subscribers.

SiriusXM, meanwhile, has over 33.5 million subscribers.

In its Q2 2018 report, the satellite radio service brought in $1.43 million in revenue, beating analysts’ expectations.  Average revenue per user (ARPU) increased 1% to $13.30.  Subscriber revenue also jumped to $1.14 billion, up 2.5% year-over-year.  SiriusXM added 429,000 new subscriptions along with 483,000 self-pay subscribers, which now totals 28.2 million.  The car penetration rate – SiriusXM’s key market – reached 75%.

SiriusXM’s long-term strategy.

With the acquisition, Liberty Media – which has a large stake in Live Nation – will expand its reach to a new digital audience.

SiriusXM CEO Jim Meyer explained in a conference call the acquisition will create “the world’s largest audio-entertainment company.”

Combined, SiriusXM will now have over 106 million monthly users.  The company will also have more than $7 billion in projected revenue this year.

According to Meyer, the satellite radio company aims to capitalize on cross-promotion opportunities on Pandora’s active user base.  SiriusXM will also leverage its existing exclusive content and programming on Pandora’s ad-supported and subscription tiers to create “unique audio packages.”

Per the announcement, the deal will reportedly create “the world’s largest audio-entertainment company.  Combined, the new company will have more than $7 billion in projected revenue in 2018.  SiriusXM will now have over 106 million monthly users.  With a large stake in Live Nation, Liberty Media could potentially create unique live entertainment opportunities for artists and listeners.

Yet, not everyone has reacted well to the news.

Following news of the acquisition, Pandora’s shares jumped 8.6% to $9.87.  Shares have since fallen to $8.95 after opening at $9.72.  SiriusXM’s stock also fell to $6.34 after opening at $6.69.