Will Internet Radio and the Cloud Squash Sirius XM Radio?
Sirius XM Radio. (NASDAQ:SIRI) is a company that’s used to drawing controversy, but this week investors are worried that the lead satellite radio provider may be attracting the wrong type of attention. Concerns are rampant that upstart competitors with new business models such as Pandora radio, which will IPO this Thursday, as well as other young companies such as “Spotify” and “Beyond Oblivion” will be able to uproot Sirius XM by offering cheaper and more desirable services.
Maxim Group Love Pandora!
Technology was weaker, despite the buzz around the Pandora IPO. Pandora (NYSE:P), the Internet radio company, was surging 26.75% to $20.28 well above its IPO price of $16, which priced well above its expected range. Maxim Group started coverage of the company with a Buy rating and a target price of $23 saying Pandora is revolutionizing the broadcast radio business, offering both music personalization and discovery.
Rival Sirius XM Radio (NASDAQ:SIRI), the satellite radio provider, was falling 3.06% to $1.90, trading close to its calculated support at $1.86. Participants were selling Sirius on concern Pandora can use their new raised funds to go aggressively against the automobile platform, which Sirius dominates.
Pandora IPO: Deadly to Sirius XM?
The Pandora Road Show continues . . . hurry-hurry-hurry, step right this way!
In breaking down the numbers, Pandora is just 4 percent the size of Sirius and has only 2 percent the number of subscribers.
It seems like only yesterday a certain-someone was telling us that Pandora had "already shifted" to a subscription-based model and would soon derive 50% of their revenue from subscription fees . . . lets see how long the honeymoon lasts.
As Howard Stern once said upon leaving the Donald Trump-Marla Maples wedding ceremony . . . "I give it 6 months"
Forget Pandora. Buy Sirius XM?
Shares of the online radio king surged as much as 63% from its offering price to $26 at one point. The stock slipped from that peak, but at midday it was trading at around $18.50. At that price, Pandora's market value was about $3 billion.
That seems a bit crazy. Pandora (P) is not profitable. It had revenue of about $137.8 million last year, which means it's trading at 21 times trailing sales.
Compare that with satellite radio giant Sirius XM (SIRI), which is actually expected to eke out a profit in 2011. Sirius XM trades at just 2.7 times last year's sales.
So Pandora is still trading at a heady valuation of more than 9 times its 2011 revenue run rate. Sirius XM, on the other hand, trades for just 2.5 times estimated 2011 sales.
Pandora: The money-losing music machine
But there's no denying that Sirius XM has suffered while investors trip over themselves to gush about Pandora.
It may be coincidence -- or the mere fact that the entire market has sunk this month on fears about the broader economy -- but since the Pandora hype machine (not to be confused with another popular online video service) began in earnest, Sirius XM shares have taken a huge hit.
Pandora said on June 3 that it expected to price its shares between $7 and $9. Its road show began soon after that. Since then, Sirius XM stock is down 15%, compared to just a 4% drop for the Nasdaq.
But analysts said it's a mistake to think that Pandora will make Sirius XM irrelevant.
"Let's not get emotional or overreact. Pandora is not going to wipe Sirius XM out," said Martin Pyykkonen, an analyst with Wedge Partners in Denver who follows Sirius XM and started coverage of Pandora Wednesday.
Why is Pandora Falling? Join the Pandora Webinar Today
Pandora’s (NYSE:P) stock is down about 20% from the $16 IPO price on Tuesday and down 45% from the $24 peak reached during the first day of trading on Wednesday. Trefis will be hosting a webinar on Pandora at 3pm EST today (Friday June 17) to highlight the factors weighing down Pandora’s stock as well as how there could be additional downside. See below for details.
Looks like the honeymoon is over!