Pandora Stock Soars … But Was the News Leaked? (P)

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Shares of streaming music company Pandora (P) shot higher in trading Monday morning, and traded as much as 15% higher at their intraday peak. Okay, so what was the catalyst? That’s where things get weird: Pandora stock was rallying on no news.

Pandora Stock Soars … But Was the News Leaked? (P)Pandora’s stock price jumped so quickly that trading was halted twice before 11 a.m. (Exchanges halt trading when a stock makes a 5% move in five minutes or less; they’re meant to give the market a time to process what the heck is going on.)

A few hours later, the cause of the rally became apparent: a ruling from the Register of Copyrights swung in Pandora’s favor, potentially decreasing the royalty fees Pandora will have to pay to artists in the years ahead.

These sort of shenanigans aren’t exactly unheard of, but they aren’t par for the course either — at least not in such an obvious fashion. This’ll be ripe material for a Securities and Exchange Commission investigation, as it looks like someone was trading Pandora stock on insider information. Naughty, naughty!

While I’d wager a tidy sum that today’s news was leaked ahead of the official announcement, let’s take a look at the news itself and how it may affect the Pandora stock price down the road.

A Welcome Development

There is one terribly important date that all owners of Pandora stock should know: Dec. 16, 2015. That’s the latest possible date that the Copyright Royalty Board is expected to make a decision regarding the future of “webcasting” royalty rates.

Whatever rate the CRB decides upon, Pandora stock will have to live with for the next five years, from 2016 through the end of 2020. When you consider that competitors like Spotify, Apple (AAPL), and Google (GOOG, GOOGL) have all hopped aboard the music-streaming bandwagon, Pandora needs every bit of financial aid it can get.

Royalty payments to artists and labels severely inhibit the company’s earnings power and therefore the stock price; last quarter, 46% of revenue went to royalty payments.

The big break for Pandora today came as the company announced that the CRB would, in its determination of fair rates, allow a 2014 agreement Pandora made with Merlin. Merlin represents thousands of indie music labels, and the deal reportedly lets Pandora pay a lower royalty rate to artists if their songs are played more often than usual.

Pandora’s deals with other major agencies like BMI and ASCAP aren’t quite as sweet (from a shareholder/company perspective), because the company has to pay fixed rates of 2.15% and 1.85%, respectively. In the Merlin deal, Pandora stock actually enjoys cost benefits from its scale.

At the end of the day, today’s announcement doesn’t make or break Pandora’s stock, and it’s no assurance of anything. But it could help sway the CRB to set lower royalty rates, and that would be a major victory.

In the meantime, you can bet your bottom dollar the folks at the SEC are looking into today’s bizarre price action.

As of this writing, John Divine owned shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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