Apple's potential entry into internet radio is poised to put online music pioneer Pandora Media on the takeover wish lists of companies from Google and Amazon to Clear Channel Communications.
Pandora is projected to increase revenue by 214% in the next two years, almost triple the median for U.S. internet media companies valued at more than $1 billion, according to data compiled by Bloomberg. With the shares down 34% since their initial public offering, a buyer could acquire a company trading for 21% less than the industry's average price-to-sales ratio using next year's forecasts, the data show.
Pandora sank 17% on Sept. 7 amid speculation that iPhone maker Apple will introduce a rival service. Should Apple do so, that may compel Google or Amazon to snap up Pandora's 150 million registered users to offer the service on mobile devices, Albert Fried & Co. and Needham & Co. said. Radio-station owner Clear Channel may be interested as listeners and advertisers shift to online media, according to Wedge Partners Corp. Needham says Pandora could fetch $14 a share in a takeover, a 32% premium, while Albert Fried sees the potential for a deal at about $20.
Clear Channel has been marketing its own internet radio service, IHeartRadio, hosting the iHeartRadio Music Festival in Las Vegas on Sept. 21 and Sept. 22 with performances by artists including Taylor Swift, Rihanna, deadmau5, Aerosmith, Usher, Bon Jovi, Lil Wayne, Green Day, Pitbull, Miranda Lambert and Enrique Iglesias.
But Pandora has a big head start on users. It represents 74% of online-radio listening, and its share of all U.S. radio use has climbed to 6.3% from 3% a year ago, Dominic Paschel, the company's VP of corporate finance and investor relations, said Sept. 12 at an investor conference. "That essentially makes us the largest station in most of the top 10" markets, he said. "We anticipate being the No. 1 radio station in pretty much all of the top 180 markets by the end of the year."
Analysts admire Pandora's scale. "When you look at the value of Pandora to another company, it's the infrastructure they have created, it's the advertising business, the success with mobile," John Rudolph, a senior adviser at Santa Monica, California-based Internet and digital- media investment bank Siemer & Associates, said in a telephone interview. "Pandora has such a big installed base and such a huge number of users, there's value in that ."
Mollie Starr, a spokeswoman for Pandora, declined to comment on the potential for a takeover. So did representatives at Amazon, Google and Clear Channel.
Apple is considering the introduction of an online service that streams music based on users' tastes, a product that would compete with Pandora, two people with knowledge of the plans said two weeks ago. An Apple spokesman declined to comment.
Pandora, which offers both paid and advertising-supported services, also generates more revenue from mobile-device ads in the U.S. than every company except Google, according to data compiled by eMarketer.