Rumblings of a potential buyout by Sirius XM Holdings Inc. (NASDAQ:SIRI) have sent Pandora Media Inc (NYSE:P) stock soaring the last couple weeks. But what would the acquisition do for SIRI stock?
On paper, the deal makes some sense — a marriage between the largest satellite radio company and the largest internet radio provider.
Pandora would give Sirius two things it doesn’t already have: a major online streaming presence and a free product. There’s just one problem — Sirius XM makes money, Pandora doesn’t.
And therein may lie the reason why a deal has yet to be consummated. Even SIRI CEO Jim Meyer said he gets “annoyed” when people compare streaming to satellite. Yes, Liberty Media Group (NASDAQ:LMCA) — the majority owner of Sirius XM — already offered to buy Pandora for $15 a share (it currently trades at $13) back in July. But Pandora rejected the lowball offer, and perhaps it was low for a reason. Sirius XM seems intrigued by Pandora, but only to a point.
SIRI Stock Is Already In Good Shape
And that brings us to SIRI stock, which essentially moves in lockstep with LMCA. It’s up 11.8% this year and 30% in the last two years. Business is good too, with sales and earnings both growing steadily the last couple years as the company has blown past the 30 million subscriber mark — up from just over 20 million subscribers five years ago.
SIRI’s subscriber-based business model seems to be working, and that’s been good for SIRI stock. Meanwhile, Pandora’s ad-generated business model has yet to help it turn a profit, which is the primary reason why the stock has lost nearly two-thirds of its value since early 2014.
There’s also this: since the merger between Sirius Radio and XM Radio was completed in 2008, Sirius XM has had no true competitors in the satellite radio space. It has exclusive rights to the wildly popular Howard Stern Show, more than 150 stations featuring virtually every type of music, sporting event and standup comedy routine, and is available in almost every new car these days regardless of manufacturer.
Pandora, on the other hand, has countless competitors in the streaming radio space, including Spotify, SoundCloud, TuneIn Radio and looming startups sprouting up from the likes of Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Seems like Pandora needs Sirius more than the other way around.
SIRI Should Hit Skip on Pandora
Initial excitement over a Pandora buyout would surely be good for a nice short-term bump for SIRI stock given the popularity of both companies (Pandora currently has 78 million active monthly listeners). But I don’t know how beneficial Pandora would be to Sirius XM in the long-term in light of all the profit struggles.
Sirius is growing just fine without it. Eventually, there will be a better, more profitable takeover target out there that could help Sirius achieve its goal of being more than “just” the dominant player in satellite radio.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
