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Pandora’s Latest Moves Offer Flexibility… High Potential

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Pandora has been on a bit of a rollercoaster lately. The stock has been all over the place, with shares currently down after the music streaming service barely missed revenue estimates by just $2 million. Last year, Pandora rejected a buyout offer from SiriusXM parent company Liberty Media Corp., but now Pandora looks like they’re ready to make a deal — kind of

What is Pandora’s Latest Move?

Pandora was a revolutionary concept almost two decades ago when the streaming music company launched its music genome project to match listeners with music that would appeal to them based on thumbing songs up or down to update preferences. In fact, their algorithm worked so well that the first song they input, a Bee Gees song, came back with a match for a Beatles song. While the team was initially dismayed, it turns out that the Bee Gees performed quite a few Beatles cover songs, meaning the project worked better than they expected.

Since then, countless music services have come about. Competitors include Spotify, its clone from Apple called Tidal, Soundcloud, and so many more. As these new services launch, Pandora, once so far ahead of the game, finds itself falling behind the curve as other companies focus their attention towards on-demand radio, letting users pick and choose what they want to hear. As such, Pandora has been dealing with financial troubles. Now, though, there might be a perfect match brewing between Pandora and one time suitor SiriusXM. But if Pandora rejected an offer from Sirius last year, what’s changed to make now a better time for a deal?

Liberty’s offer to buy Pandora came while Pandora was down. Now, it seems the tables have turned. Sirius needs to find some reliable, profitable out-of-car products to expand its revenues and support an ad-supported model, which the company has stated it wants to do. Without an acquisition, that becomes difficult for Sirius. Pandora already has an existing user base, as well as a reliable ad-supported platform. It would be cheaper (and easier) for Sirius to acquire Pandora rather than create a new platform from the ground up.

From Pandora’s side, revenues are down as are shares. However, subscribers are up 20 percent year over year in Q1. As Pandora premiers its Pandora Premium on-demand service, expectations are high as trial subscriber numbers grow. However, listening hours are down, and while those subscribers grow, paying members are stagnant. In fact, Pandora announced that it would lay off 7 percent of its workforce in January to offA deal with Sirius would provide an influx of cash for Pandora to invest in new offerings and features, and more targeted marketing.

But does Pandora really need the money?

It seems faith in Pandora has been restored by the company securing a $150 million investment from highly respected investment firm KKR. That money would help Pandora’s balance sheet, and could go up to $250 million. But before that money comes in, Pandora will explore strategic alternatives, including a sale.

Watch the video from CNET as they review Pandora’s ‘Pandora Plus’:

Put simply, Pandora has options now. And whether the company sells or accepts KKR’s stake in the company, expect shares of Pandora Media, Inc. (P) to rise up.

Learn where the smart money is in trading tech with Guy Cohen right here.

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