Liberty Media CEO Greg Maffei seems to have a strange, love-hate relationship with Pandora.
One day the media tycoon is professing his admiration for the streaming music company, stoking anticipation that he might acquire it.
The next day his company poo-poos Pandora’s business model in public and sends its stock tumbling.
The one constant is that, over the last few months, the comments of Maffei and Liberty Media have reliably sent Pandora stock into a tizzy. It almost seems like he enjoys toying with Pandora’s stock.
Take last month, when Maffei commented on Pandora. “Not clear that the valuation makes sense,” he said. “At the right price, interesting. Not clear this is the right price.” Pandora stock sank around 6%.
Many observers, including activist investor Corvex, think Pandora should sell itself. And Liberty Media,, which controls satellite-radio powerhouse Sirius XM, seems like the only buyer in town. Maffei reportedly made an informal offer for Pandora at roughly $US15 a share early last year. So when Maffei opines about the company, Pandora investors get whiplash.
How bad has it gotten? Here’s a graphic showing how Liberty Media’s actions have moved Pandora’s stock:
- On July 21, 2016, The Wall Street Journal reported that “Mr. Maffei floated an offer to acquire internet-radio company Pandora Media Inc. for roughly $US15 a share.” Stock movement: Up 5%.
- On December 2, 2016, CNBC and Bloomberg reported that Pandora was open to selling itself, and that Liberty Media CEO Greg Maffei expressed an interest. Stock movement: Up 16%.
- On January 5, 2017, Sirius XM CFO David Frear said, “With respect to all the chatter about acquisitions, you have to look at them as sort of being not very likely.” He also said that “on the Pandora front, they have got a big change in strategy with this move into the interactive sort of music business, which we’ve been public in our doubts about it.” Stock movement: Down 5%.
- On February 28, 2017, Liberty Media CEO Greg Maffei said, “Not clear that the [Pandora] valuation makes sense … At the right price, interesting. Not clear this is the right price.” Stock movement: Down 6%.
- On March 1, 2017, Liberty Media CEO Greg Maffei said, “[Pandora is a] great product — way under monetized.” Stock movement: Up 2%.
- On March 7, 2017, Liberty Media CEO Greg Maffei said that Pandora was “overvalued” and that $US10 per share was something that could work. Stock movement: Down 6%.
Can Maffei, who reportedly has already offered (at least once) to buy the Pandora, keep making public comments that mess with Pandora’s stock price?
“When buying and selling stock there’s a lot of latitude,” Greg Sichenzia, a lawyer who advises companies on securities law, told Business Insider. “You can’t lie. You can’t commit fraud.” But Sichenzia said there’s a lot of room when it comes to your personal opinion, even about a public company you might buy. Sichenzia said the times when this kind of thing actually becomes an issue is when short sellers falsely bash a stock and then ride it down. This isn’t close to that.
“One guy’s opinion should not move a stock,” Sichenzia added. If it does, there’s a bigger problem with your business.
Liberty Media and Pandora declined to comment on the situation.
On-demand might not save Pandora
Liberty Media’s actions have had such an effect on Pandora because, fundamentally, Pandora is a company with an uncertain future. The long-term prospects of Pandora seem to rest in the success of its upcoming on-demand product, Pandora Premium. The service will compete with the likes of Spotify and Apple Music. That product had been shown to press and investors, and is scheduled for release this month.
Pandora’s internet radio service has secured a massive and loyal audience, and the company hopes that audience will pay a monthly fee for its new service, which lets users listen to specific songs. Here’s a snapshot from a survey of the preferred music service of US subscribers:
The problem for Pandora is that the vast majority of its users don’t pay. That hasn’t been good for Pandora’s bottom line, and is one reason the stock price is sitting at around $US12 a share, lower than the $US16 IPO price in June 2011.
In January, Pandora announced it would cut 7% of its workforce by the end of Q1 2017. But Pandora is hoping to turn things around with the new on-demand service. The basic idea behind Pandora Premium is that by making a simple and intuitive product, Pandora can convert some its users who might be turned off by the complexity of competitors like Spotify.
Here’s an example. One feature that was notable in the Pandora Premium demo was its ability to auto-complete playlists. Half of user-generated playlists have fewer than five songs, the company said earlier this year. To add new ones, Pandora reaches into its data about the songs already on the list and also your listening history, which for some users can go back many years, and add various songs. You can swipe to get rid of them if you don’t like Pandora’s choice.
Big losses everywhere
Little touches like that might help sweeten the deal for longtime Pandora users — and there are a lot of them — but the broader issue is that even if Pandora’s new service is a hit, none of the major players seem to be making any money in on-demand streaming anyway, even as they rack up millions of subscribers.
It’s not clear that even with on-demand Pandora will be able to stand up on its own.
This brings us, again, to who a potential suitor for Pandora might be. The big tech players, from Apple to Amazon to Google, already have their own music services. It’s unlikely they will buy Pandora. AT&T and Verizon seem much more preoccupied with video, and there hasn’t been any chatter on that end. So that leaves Liberty Media, via Sirius XM, as the most likely candidate.
And in a one-buyer scenario, it’s hard to see why Liberty Media would pay a premium. “Why should Liberty/Sirius pay up, when they are the only interested buyer and Pandora’s standalone prospects are increasingly grim,” BTIG analyst Richard Greenfield wrote in a note last week.
So for the foreseeable future, every time Maffei makes a comment about Pandora being overvalued, or a pretty good business actually, expect Pandora’s stock price to go haywire.