Pandora Media Inc (ticker: P) shares were down sharply Tuesday after a volatile pre-market session as investors digested the streaming music company’s news-packed first-quarter earnings report. Pandora reported a mixed financial performance in the first quarter, but news of a huge investment from KKR & Co. L.P. (KKR) and a possible sale of the company stole the show.
Pandora revealed the company will receive at least a $150 million investment from KKR in exchange for preferred stock. KKR could also choose to increase its investment to as much at $250 million. In addition, Pandora board members James Feuille and Peter Gotcher announced they will be stepping down from the board and KKR’s Richard Sarnoff will be joining.
Aside from the cash infusion, Pandora also said it will take advantage of the 30-day window prior to the closing of the KKR deal to explore strategic alternatives, including a possible buyout.
“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,” Feurille says in a statement.
Pandora’s first-quarter results gave investors reason for optimism, but the company still has a long way to go before it’s profitable. Pandora reported an adjusted loss per share of 24 cents, slightly better than consensus analyst estimates of a 34-cent-per-share loss. However, revenue of $316 million came up short of consensus estimates of $318 million, and Pandora reported a decline in active listeners from 79.4 million a year ago to only 76.7 million.
“Though we believe P’s portfolio of products offers users the best end-to-end user experience in the market, we believe the company’s delayed entrance into the on-demand market presents significant sub growth uncertainty,” Wells Fargo analyst Peter Stabler says.
JMP Securities analyst Ronald Josey says investors should stay on the sidelines until some of that uncertainty is eliminated.
“Absent a strategic acquisition, we believe the risk/reward in shares remains balanced until we see more clarity in consumer adoption of Pandora’s new subscription products and stabilization in its advertising-based products,” Josey says.
If Pandora finds a buyer, investors should expect additional news within the next month. Pandora has certainly garnered interest from buyers in the past. Liberty Braves Group (BATRA) CEO Greg Maffei once reportedly offered…
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