Analysis

Pandora secures at least $150m investment but may still sell


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It was a night of big news for Pandora: quarterly financial results; news of a potential $150m new investment in the company; but also new confirmation that the streaming service is up for sale to the right buyer.

Start with the financials. Pandora’s revenues grew by 6.3% year-on-year to $316m in the first quarter of 2017. However, the company’s net loss increased from $115.1m in Q1 2016 to $132.3m a year later, with a 9.4% hike in content acquisition costs to $187.4m one of the key reasons. The company’s active users fell by 3% year-on-year to 76.7 million though.

In its financials announcement, Pandora focused on the early signs from its subscription services. There have been 1.3m ‘trial starts’ in the last seven weeks, including more than 500k on its new on-demand Premium tier. 82% of its new trial subscribers were already Pandora users (so “virtually free of acquisition costs”). Overall, Pandora’s paying subscribers increased from 3.9m in Q1 2016 to 4.7m in Q1 2017: 20% year-on-year growth.

Onto the (potential) new funds: Pandora has agreed a strategic investment of $150m from investment firm KKR, through the sale of a new, convertible Series A preferred stock, which is not expected to close before 8 June. Why that date? “Having secured a significant financial commitment from KKR to strengthen the Company’s balance sheet, we have positioned the Company to evaluate any potential strategic alternatives, including a sale, in the 30 days before the financing is set to close,” said director James Feuille.

In other words, Pandora is setting itself the deadline of a month to smoke out one of the various potential buyers who’ve been eyeing the company – with Liberty Media the most prominent – before taking the $150m investment option, although that could swell to $250m if other strategic investors chip in.

Stuart Dredge

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