Going into trading on Monday, Pandora Media Inc (P) stock was down 20% in 2016 and 41% in the last year — despite gaining more than 6% last week on renewed calls for the streaming music company to sell itself. Could Facebook Inc (FB) in fact be a dream buyer?
Before you balk at the notion of FB buying Pandora, consider the point that an Axiom analyst made last week: The big-time likely acquirers – Alphabet Inc (GOOG, GOOGL), Apple Inc. (AAPL), and Amazon.com, Inc. (AMZN) – all already have streaming music.
Facebook does not.
With P stock up another 1% or so today in early morning trading, is it time to give Pandora stock a chance? How much sense would an acquisition at the hands of Facebook make in the first place?
FB Buying Pandora (P) Makes Sense
Before you deem me a looney-bin escapee, let me point out a few things. FB really wants to keep its 1.65 billion users engaged and on its site and app for as long as possible. This is where making a buyout bid on P stock could make a lot of sense: Users listened to over 21.1 billion hours of music on Pandora last year alone.
If you break that out across FB’s 1.65 billion users, that’s 12.79 hours of music per user, per year, or an average of 2.1 minutes per day. It doesn’t sound like much, but every minute of your waking life you can spend on a Facebook-owned service is a win. This is why FB famously tried to buy Snapchat in 2013, which users are now spending 25 to 35 minutes per day on.
Snapchat is now “worth” $15 billion or so in the eyes of private equity though, and CEO Evan Spiegel is even more likely than he was in 2013 to turn down a buyout offer from FB.
But, at where P stock trades today — it’s worth about $2.5 billion — Zuckerberg could easily swoop in and acquire the company.
It’s worth remembering that FB basically made Spotify, which has an $8.5 billion valuation, what it is today. If Facebook bought Pandora, you can rest assured you’d see some rapid user growth, as FB would likely make sharing your Pandora activity simple and easy.
Heck, maybe they’d even end Spotify’s deep integration with Facebook. Pandora’s minutes-listened-per-Facebook-user ratio would soar.
Some of P stock’s small bounce this morning is attributable to the research firm B. Riley, which upgraded shares to “Buy” from “Neutral” and gave the stock a $15 price target.
With FB likely to acquire at a premium should the social media giant put in a bid, that’s not an entirely unreasonable number. If you think a deal will be done (Corvex, Pandora’s largest single shareholder, is agitating for a sale), then P stock certainly looks reasonable here.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
