Pandora Media (NYSE:P) has taken an important step forward in its goal to expand internationally and has launched a public beta of its internet radio service in Australia & New Zealand. While Pandora has a good market presence in the U.S., setting up a similar presence in international markets is not going to be easy given the complexities of acquiring content.
The company’s expansion into international markets is not only a growth initiative, but also a strategic one. Given the increasing competition in the U.S. from players such as Spotify, Clear Channel Radio and others, it makes sense for the company to diversify its geographic exposure. Furthermore there is no doubt that the potential for subscriber growth in international markets is quite large as internet penetration continues to rise and internet-enabled device adoption increases. Though the population of Australia and New Zealand is much lower than the US, the low penetration of internet radio presents a lucrative opportunity for Pandora.
Australia has a population of over 22 million residents and fewer than 1 million Australians listened to internet radio in 2011.  Also, as of 2011, less than 9% of the population aged 14 and over in Australia used their smartphones to listen to the radio.  This in stark contrast to the U.S. where out of a population of 310 million Pandora has close to 150 million registered users. This suggests that there is opportunity for internet radio penetration to increase significantly in Australia. Negotiating royalty rates with artists and music labels is going to be an important element of the company’s international expansion strategy. Pandora has not yet disclosed this information.
Our price estimate for Pandora Media stands at $7.90, implying a discount of about 20% to the market price.Notes: