Can Pandora (P) Turn Its Fortune Around With New Service?
Zacks Investment Research | Dec 07, 2016 08:58PM ET
Amid takeover rumors, Pandora Media Inc. (NYSE:P) has announced a new on-demand streaming service – Pandora Premium. Reportedly, the new service, expected to be launched in early 2017, carries a price tag of $10.
Pandora has said that Premium “will open up a world of music completely unique” to every individual. In fact, it will create a playlist for users based on their playlist history, which CEO Tim Westengren was quoted saying as the “standout” factor. It will be ad free and enable users to save songs for offline listening. The launch of the service comes almost a year after the company acquired assets streaming music service provider, Rdio .
Pandora Premium’s announcement comes shortly after the company launched Pandora Plus in Sep 2016. Plus is another ad-free service available for $4.99 per month that allows “more skips, replays and an ingenious solution for offline listening that elegantly handles issues with lost connectivity and cellular data usage.”
However, analysts observe that Pandora’s new service doesn’t offer something radically different from what is already available in the market. They argue that Pandora’s entry has been pretty late in the on–demand music services arena, which boasts big names like Spotify and Apple Inc (NASDAQ:AAPL) .
In fact, Apple Music has seen phenomenal growth. Within a year and half of its existence, reportedly, Apple Music now has 20 million paid subscribers, inching closer to Spotify’s 40 million paid subscribers. Apple Music’s tie up with popular music artists like Taylor Swift and many more, has being widely considered by analysts as the key to its success.
Pandora though a big name in the online radio market is still a “no-profit” organization. Escalating costs related to licensing, footprint expansion and operating expenses continue to be a drag on profitability.
In the third quarter of 2016, total listener hours, however, grew 5% on a year-over-year basis to 5.40 billion but the number of active listeners fell to 77.9 million from 78.1 million in the prior-year quarter.
Intensifying competition spells trouble for Pandora. The digital music streaming industry is expected to grow exponentially over the next few years and all the players including Apple, Spotify, Tidal, Pandora and Amazon (NASDAQ:AMZN) are striving to strengthen their presence. As per a Statistica report, revenues from digital music streaming are projected to grow approximately 9.47% between the period 2016 and 2020, leading to market volume of $2,773.2 million by 2020.
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A couple of days back, the shares of Pandora surged following rumors of a buyout. Per media reports, satellite radio company, Sirius XM Holdings Inc. (NASDAQ:SIRI) is still interested in buying Pandora. Per reports, Pandora too was willing to engage in constructive talks with Sirius. Year to date, Pandora’s shares are now up 3.28% as against the Zacks categorized Internet Services industry’s decline of 0.18%.
At present, Pandora carries a Zacks Rank #4 (Sell).
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