Analyst Expects Pandora Shareholders to Reject SiriusXM Offer After Q3 Ad Report
Wedbush Securities' Michael Pachter advised Pandora shareholders to reject SiriusXM’s September $3.5 purchase offer in an all-stock deal (see 1809240030), after Pandora’s Q3 earnings and its revenue topped guidance of $390 million-$405 million and consensus analyst forecast of $402 million. Pandora's $417.6 million was 16 percent higher than the year-ago quarter.
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A recent decline of SiriusXM stock from an implied deal price of about $8.80 is “well below the $10.14 price originally contemplated,” Pachter wrote investors: “We expect shareholders to reject the deal as inadequate, and to press for renegotiation.” Pandora is “well-positioned to renegotiate its royalty deals with record labels (or to revert to CRB rates),” which would increase profitability, said the analyst. “Pandora’s turnaround puts pressure on SiriusXM to consider a higher offer.”
The deal was expected to close in Q1. On Oct. 24 Pandora announced the go-shop process was completed. Under terms of the agreement, Pandora could walk away from the deal if it pays Sirius a $105 million termination fee but would be obligated for only $52 million if it cancels the deal to accept a “superior” offer by Nov. 22 under a go-shop provision, said an SEC filing. Pandora had the right to solicit or make a proposal leading to a competing purchase proposal until the Oct. 24 “no-shop” period start date. A shareholder vote hasn't been completed.
In Q3, Pandora had $291.9 million in advertising revenue and $125.8 million from subscriptions, which grew by 84,000 to reach 6.8 million total subscribers, said the company. The 6 percent bump in ad revenue was the first year-on-year ad growth since Q3 2017, it said. Ad revenue per thousand impressions hit a company-best $77.83, up 11 percent from a year ago. Pachter credited ad growth to “strong inventory sell-through, new ad formats, a mix shift toward higher CMP ad formats” and a full-quarter contribution from digital audio platform company AdsWizz, purchased in May.
Pandora’s partnership with SoundCloud, beginning next year, will stretch the ad reach to over 100 million listeners in the U.S., said the company. Advertisers and brands can buy SoundCloud’s U.S. ad inventory directly through Pandora, using its direct sales capabilities, targeting data, and AdsWizz audio programmatic product.
There are 68.8 million active users, with 4.81 billion total listener hours, said Pandora. Its Plus and Pandora Premium subscribers totaled 6.8 million. More than 32 million listeners have used Premium Access since launch.
Shares closed up 4.3 percent Tuesday at $9.02.