Apple’s potential entry into Internet radio is poised to put Pandora on the takeover wish lists of companies including Google, Amazon and Clear Channel, postulates a Bloomberg story.
Pandora is projected to increase revenue by 214% in the next two years. With the shares down 34% since their IPO, a buyer could acquire a company trading for 21% less than the industry’s average price-to-sales ratio using next year’s forecasts, the story noted.
Pandora sank 17% on 9/7 amid speculation Apple will introduce a rival service. Should Apple do so, that may compel Google or Amazon to snap up Pandora’s 150 million registered users to offer the service on mobile devices, Albert Fried & Co. and Needham & Co. said.
Clear Channel may be interested as listeners and advertisers shift to online media, according to Wedge Partners Corp. Needham says Pandora could fetch $14 a share in a takeover, a 32% premium, while Albert Fried sees the potential for a deal at about $20.
“When you look at the value of Pandora to another company, it’s the infrastructure they have created, it’s the advertising business, the success with mobile,” John Rudolph, senior adviser at investment bank Siemer & Associates, told Bloomberg. “Pandora has such a big installed base and such a huge number of users, there’s value in that.”
Pandora represents 74% of online-radio listening, and its share of all U.S. radio use has climbed to 6.3% from 3% a year ago, said Dominic Paschel, the company’s vice president of corporate finance and investor relations. “That essentially makes us the largest station in most of the top 10 markets. We anticipate being the No. 1 radio station in pretty much all of the top 180 markets by the end of the year.”
An acquirer would get a company projected to increase revenue to $861 million in the fiscal year ending in January 2015, up 214% from $274.3 million in fiscal 2012, according to analysts’ estimates compiled by Bloomberg.
Apple’s entry into online radio could spur rivals such as Google and Amazon to step up their competing efforts by acquiring Pandora, according to Albert Fried’s Richard Tullo and Needham’s Laura Martin.
Google is the developer of the Android software that runs smartphones produced by companies such as Samsung. Amazon makes Kindle e-readers and tablet computers.
Apple could win as many as 20 million users for its radio service within a year, Tullo said.
“Because Apple is doing something, that makes everybody else want to counter their move,” Tullo told Bloomberg. He sees a buyer possibly paying about $20 a share for Pandora, which closed 9/20 at $10.58.
RBR-TVBR observation: It does seems to make sense, except for Clear Channel, whose iHeartRadio already has its own music discovery service like Pandora and already has a stable of millions of registered users—driven by incessant promotional spots across all of its stations. Ironically, Apple, which now bundles all of its iPhones with both iHeartRadio and Pandora, obviously doesn’t seem too worried about competition if it launched its own service–via iTunes or another way. Perhaps Apple itself should consider buying Pandora—if negotiations with labels don’t fare well. It can certainly afford it and the move would be seamless. If not, Google will likely make the move.