Pandora Media Inc (
surged 5.0% ($1.20) to close at $25.19 (highest price since its
initial public offering), after the Internet radio service
provider announced the sale of 10 million shares in a new
offering, which will fetch it approximately $231.0 million.
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Pandora expects to use the proceeds for capital expenditure and
working capital purpose. The company also intends to use a
portion of the proceeds for making strategic acquisitions that
will boost subscriber base. According to Bloomberg, music
applications Songza and Raditaz can be possible takeover targets.
Pandora also announced that its biggest shareholder Crosslink
Capital will sell an additional 4 million shares. Underwriters
JPMorgan Chase (
have a 30-day option to purchase an additional 2.1 million
shares, which will further boost the proceeds to approximately
Pandora with more than 72 million active listeners continues to
face significant competition from the likes of
Sirius XM (
and Spotify. The company recently announced that it expects
advertising revenue growth to slow down and lesser listener hours
in the near future, particularly due to increasing competition.
Pandora expects to continue to report losses in the near term.
Pandora recently appointed Brain McAndrews, a former advertising
executive as its chairman and chief executive officer. We believe
that the latest share offering reflects a turnaround strategy
implemented by the new leadership as the proceeds will boost
liquidity. This will allow the company to invest in future growth
initiatives, which may include diversifications to other
Although the stock sale by majority shareholder Crosslink may
reflect dwindling interest in the business, we believe that the
lower stake (stake reduces from 16.5% to approximately 13.0%)
will help the new management to make more independent decisions.
Meanwhile, Pandora recently won a favorable judgment against some
music publishers, who were trying to narrow the scope of the
license that enables Pandora to play their music.
According to Reuters, a U.S District Judge ruled that the
American Society of Composers, Authors & Publishers needs to
license its entire works to Pandora for the 2011 to 2015 period,
even if publishers seek to withdraw authority to license.
We believe that the new stock offering coupled with the recent
legal win will further drive Pandora's stock price. However,
rising costs related to licensing and increasing competition are
the major concerns in the near term.
Currently, Pandora has a Zacks Rank #3 (Hold).