Weekly Radio Notes: Pandora Media and Sirius XM

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The past week was mostly uneventful for leading radio provider – Sirius XM (NYSE:SIRI), while Pandora Media‘s (NYSE:P) shares fell 6% as Spotify announced 60 million active users. Spotify has been growing its user base aggressively, which appears a little threatning for Pandora given that both the services have similar target audience. In other news, Pandora hired Alan Schanzer as SVP of Agency and Advertiser Development.

Sirius XM’s Canadian subsidiary reported its Q1 2015 net income, that easily trumped analysts’ estimates. Soon after, the company announced selection procedure for leasing a Qualified Entity channel, and lost a lawsuit against 1960s band, The Turtles. Here is a quick roundup of the news that mattered for these companies.

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Pandora Media – Shares Down, Spotify’s Announcement, New SVP For Advertiser Development

Pandora’s shares fell 6% during the weak due to continued skepticism about its long term sustainability as well as Spotify’s announcement of crossing 60 million active users. On Monday, Spotify issued a press release saying that they had reached 15 million subscribers and 60 million active users. [1] The company boasts of a large music library and offers good streaming quality and tools to build customized playlists. Spotify also has radio feature which puts it one step ahead of Pandora in terms of music formats offered. Spotify seems to be doing better than Pandora in terms of converting its free users to paid subscribers. Paying users as percentage of active users stands at 25% for Spotify compared to merely 5% in the case of Pandora. Hence, Spotify’s rapid growth could trouble Pandora going forward.

On Tuesday, Pandora announced that it has hired Alan Schanzer as the Senior Vice President of Agency and Advertiser Development. He will look after the company’s collaborations with advertising agencies and brands, providing counsel to marketers and analyzing feedback from agencies for product development. Mr. Schanzer has over 20 years experience in media, working with leading brands across the globe including AT&T, Citibank, Xerox, Campbell’s, Colgate, Paramount, Range Rover and Jaguar. His inclusion is likely to help Pandora strengthen its ad monetization. [2]

We estimate revenues of about $914 million for Pandora in 2014. Our price estimate for the company at $25 is around 60% 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 – Canadian Net Income, Leasing Procedure And Lawsuit

Sirius XM’s stock price roughly remained stable throughout the week, barring small increase at the start, when its Canadian subsidiary reported Q1 2015 net income. Sirius XM Canada Holdings reported earnings of C$8.02 million or C$0.06 per share, as compared to C$4.80 million or C$0.04 per share in the same quarter of the prior year. Analysts had expected the company’s EPS to be around C$0.04.

On Wednesday, a New York federal judge rejected Sirius XM’s request against the court’s earlier decision, that was in favor of the 1960s band, The Turtles. Sirius XM presented the argument that Flo & Eddie, another satellite radio company controlled by the band founding members, did not own the rights for The Turtles’ recordings, and hence Sirius XM playing their songs was not copyright infringement. However, the court disagreed. It said that Flo & Eddie would receive damages related to copyright infringements for three years before August 16, 2013, the day it sued Sirius XM. [3]

A day later, the company announced selection procedure to lease a Qualified Entity channel, to be broadcasted via satellite and Internet. According to Sirius XM’s guidelines, the content should be original, diverse and exclusive to the company’s subscribers. [4] Sirius XM’s strong content is one of the reason why people buy the satellite radio provider’s subscriptions, and hence a new entry needs to be thoroughly reviewed.

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. Our price estimate for the company at $3.58, is just ahead the current market price.

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Notes:
  1. 15 for ’15!, Spotify, Jan 12 2015 []
  2. Pandora Hires Alan Schanzer as Senior Vice President of Agency and Advertiser Development, Pandora, Jan 13 2015 []
  3. Sirius XM is dealt a new setback in Turtles copyright lawsuit, Reuters, Jan 15 2015 []
  4. Sirius XM Announces Selection Procedures for Leasing a Channel Under Its “Qualified Entity Set-Aside” Program, Sirius XM, Jan 15 2015 []