Weekly Radio Notes: Pandora And Sirius XM

The past week wasn’t too good for leading radio providers in the U.S. – Pandora Media (NYSE:P) and Sirius XM (NYSE:SIRI). Shares of both the players fell during the week following the trends in the stock market, which reacted to a lowering of global growth forecast by International Monetary Fund for 2014 and 2015. On Thursday, Pandora announced its partnership with Ford Australia, a move which places the company well in its debut international market. For Sirius XM, the week was mostly about Liberty Media’s indirect indication that it may still look to acquire the company. Here is a quick roundup of the news that mattered for these companies.

Pandora Media – Shares Down; Announced new Partnership

The U.S. stock market stumbled a little this past week, as International Monitory Fund cut its global growth forecast for 2014 from 3.4% to 3.3% and for 2015, from 4% to 3.8%. ^{[1] [2]} The S&P 500 index declined 2.5% during the week and the Dow Jones Industrial Average was down 2%. During the week, Pandora’s stock followed a trend similar to the S&P index. It was highest at the start of the week, fell to its lowest value on Wednesday, revived on Thursday before falling again towards the end. Overall, the company’s shares declined 10% during the week.

As small-cap shares across the market resumed a sell-off just ahead of the earnings season, Pandora’s CRO and Director sold 40,000 and 10,000 shares, respectively, on separate occasions. ^{[3] [4] [5]} Later in the week, the company announced its partnership with Ford Australia to offer Internet radio in new Ford cars sold in the region. ^[6] Pandora Internet radio will now be pre-installed in a number of Ford models including Kuga, Fiesta ST, Focus ST, Ranger and Transit. The company has already reached the milestone of 2 million registered users in Australia and New Zealand in less than 2 years, and the recent partnership is expected to add more fuel to its rapid subscriber growth.

We estimate revenues of about $860 million for Pandora in 2014, with earnings per share of $0.11. Our price estimate for the company at $25 is less than 15% premium to the current market price. Despite the uncertainty surrounding the sustainability of its business model, we believe that Pandora still has a lot to explore in the new and used car markets.

Sirius XM – Shares Fall; Liberty Media shows Interest

Similar to Pandora, Sirius XM’s shares also declined during the past week, albeit at a slower pace of about 5%. It is now trading at $3.28, which is about 15% below the buyout offer Liberty Media extended earlier this year. Liberty Media, which owns more than half of the company, offered to buy the remainder of shares at $3.86 a piece in January this year, but shareholders rejected the offer. ^[7]

During the recently held FBR Digital Media Thought Leaders Conference, Liberty Media CEO Greg Maffei pointed out Sirius XM’s current stock price, gently reminding shareholders that his buyout offer was a generous one. Also, he did not rule out the possibility that Liberty Media may again extend an offer for the remaining shares. Greg Maffei made it clear that although he was satisfied with Liberty Media’s current stake in Sirius XM, a complete takeover would be a sensible move considering synergies and tax benefits. ^[8] While Mr. Maffei did not explicitly say that he intends to acquire the company, we may see a buyout offer in the future if Sirius XM’s stock continues to underperform. Since the beginning of the year, the company’s shares have fallen by more than 5%. However, our price estimate for Sirius XM at $3.49, is over 5% premium to the current market price.

We estimate revenues of about $4.1 billion for Sirius XM in 2014, with earnings per share of $0.13, which is just above the high end of the market consensus of $0.12-$0.08, compiled by Thomson Reuters.

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1. S&P 500 Plunges to August Low on Global Growth Concern, Bloomberg, Oct 8 2014 [↩]
2. IMF Cuts 2015 Global Growth Forecast to 3.8%, The Wall Street Journal, Oct 7 2014 [↩]
3. U.S. Stocks Retreat as Small Caps Decline Before Earnings, Bloomberg, Oct 7 2014 [↩]
4. Insider Selling: Pandora Media Director Sells 10,000 Shares of Stock, Ticker Report, Oct 8 2014 [↩]
5. Insider Selling: Pandora Media CRO Sells 40,000 Shares of Stock, Ticker Report, Oct 6 2014 [↩]
6. Pandora Internet Radio Announces New Auto Partnership With Ford Australia, Pandora, Oct 9 2014 [↩]
7. Liberty Media proposes Sirius XM takeover, The Deal, Jan 6 2014 [↩]
8. Liberty Media CEO Doesn’t Rule Out Takeover of SiriusXM, The Hollywood Reporter, Oct 9 2014 [↩]