Speculation about Pandora, Apple, sees stocks leaping

Speculation that Pandora is merging or for sale, and that a cashed-up Apple is looking to acquire another company, has sent stocks for both leaping. Neither rumour is connected with the other.

Shares in music streaming service Pandora have jumped 32% in the past three weeks – and 2% last Friday – as rumours intensify that it is set for an ownership change.

As reported in its Q1 earnings call late last month, Pandora has 100 million users a month and has a market capitalisation of US$2.6 billion (A$3.61 billion). But it’s losing money due to huge licensing costs. In the January to March 2016 snapshot, it posted a 29% rise in revenue to $297 million ($413.3 million), 74% of which came from ad revenue. But its loss of $59 million ($82.1 million) was three times redder than in the same quarter a year before. After a high in September 2015, its shares dropped 50% until last week.

Even more bad news is that its growth of active listeners is slow: from 79.2 million a year ago to 79.4 million today. The time that they spend listening has only grown by 4%.

Some investors are calling for the company to be sold – and rumours are suggesting that SiriusXM Radio is the buyer. However there is little, or no, indication that the satellite firm is even interested in buying Pandora.

Sirius CEO Jim Meyer has in the past said that he’s not interested in getting into streaming even though he knows many of his 28 million viewers are.

In any case, the two companies work on totally different models. Pandora is ad driven. Sirius opts for subscription fees for its 28 million subscribers, and reports that it subscribers are growing at 8% a year. It has little interest in ad revenue: these only made up 3% of the $1 billion ($1.39 billion) it made in the last quarter.

In any case investors are warning clients that they should only be buying Pandora shares if they think it has a healthy and long future, not because there are rumours about it.

In the meantime, rumours that Apple is looking for a media company to acquire sent shares of Netflix and Time Warner hurtling north – respectively by 3% to $102.81($143.07) and by 2% to $74.07 ($103.08). Apple has about $215 billion ($299.2 billion) cash on its books.

Last week, Apple’s market capitalization was $550 billion ($765.4 billion). It could easily buy out Netflix, which is valued at $44 billion ($61.2 billion) and Time Warner which has a market capitalisation of $58 billion ($80.7 billion).

The Apple rumours intensified after a report last week in The Financial Times that in 2015, Apple’s Senior Vice President Eddy Cue had a meeting with Time Warner’s Head of Corporate Strategy, Olaf Olafsson, at his New York office and mooted the idea of a buy-out.

But the idea never got off the ground to the point where the heads of the two companies got involved in discussions.

The Financial Times also suggested that Apple was interested in Netflix.

The Apple-Netflix rumours have been around for a time. But they intensified after Apple CEO Tim Cook said in April that the tech company could “definitely buy something larger than we’ve bought thus far” if there was a deal that fit strategically

Apple has long wanted to launch a service like Hulu and Amazon Prime Video. But it has been frustrated by how long it’s taken to get licensing for the large amount of content it would need.

In the past 12 months, the word is that Apple has dumped plans to start its own service and intends to acquire one instead.

If Apple bought Netflix it would acquire 81.5 million subs worldwide and become the world’s #1 subscription video service.

A Time Warner buy-out would give Apple HBO’s streaming services, HBO Now and HBO Go. In February this year, it was revealed that HBO Now only had 800,000 subscribers. This was much less than market expectations of 1 million to 2 million. Netflix on the other hand had 75 million subscribers (as of January) and Hula had 9 million (as of April 2015).