Pandora turns south as investors shrug off latest acquisition talk

Another year…and another batch of speculation begins about the future of Pandora Media.

The Oakland-based internet radio company is preparing to roll out its first true, on-demand streaming music service, dubbed Pandora Premium. With close to 80 million users, the majority of whom use Pandora’s free, ad-supported music-listening option, Pandora hopes to attract some of those listeners to Pandora Premium and its expected $10-a-month subscription fee. For that amount, listeners will get to search and play anything they can find, build their own playlists and take their music selections with them offline when the service launches, possibly in the first quarter of the year.

It’s a big move for Pandora, which is trying to maintain its leadership position among internet music-streaming rivals such as Spotify and Apple Music. And when it happens, it will arrive on the heels of continuing talk that satellite-radio company Sirius XM may be interested in buying Pandora, and how Apple might benefit from acquiring one, if not both companies.

The theory is that Apple, which is making services a bigger part of it future business efforts, would strengthen that side of its operations with Pandora under its wing. Apple has about 20 million paid subscribers to its Apple Music service, but Pandora has nearly four times as many members.

In addition to its upcoming Pandora Premium service, Pandora recently launched Pandora Plus, a $4.99-a-month streaming option with no ads which allows for unlimited replays of songs. Again, those are paying customers that would give a boost to Apple’s services business.

Pandora shares, however, fell more than 4 percent Friday, to $12.48.

A drop like that suggests that the market isn’t putting much credence in the latest Pandora-as-an-acquisition speculation. After all, Pandora has a market capitalization of $2.88 billion. Any purchase would include a premium of, say 25 percent on top of that. That would bring the price tag, at least as of this writing, to $3.6 billion. The only time Apple paid anywhere near that amount for anything was when it wrote a $3 billion check for Beats back in 2014.

Neil Doshi, an analyst with Mizuho Securities, said he met with Pandora’s management and investor relations teams at the Consumer Electronics Show in Las Vegas this week. Doshi said the potential for Pandora this year is high, but questions remain, especially with Pandora Premium still set to launch.

Doshi said company officials mentioned they would be “disappointed” if Pandora added only 1 million Pandora Premium subscribers this year. Doshi believes Pandora Premium will add 1.25 million subscribers, but admitted that “expectations are low” ahead of its launch.

“There could be upside, but we need to test the product to see how differentiated it is, and how well the product is resonating with users,” Doshi said.

We’ll all have to wait a few more weeks for the latest update on what Pandora is hearing from its listeners. The company’s fourth-quarter results are likely to come out near the end of the month.

Photo: Pandora’s logo seen at the New York Stock Exchange. (Richard Drew/AP)

 

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