CEO Resignation Opens Up Pandora’s Box
Diane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Following news that CEO Joe Kennedy will be stepping down after nearly 10 years at the helm, shares of online music streaming company Pandora Media (NYSE: P) jumped 21%.
The 53-year-old will remain at Pandora until a replacement is found. In a statement Kennedy said,”I reached the conclusion and advised the board that the time is right to begin a process to identify my successor.”
Kennedy’s announcement of his exit came on the heels of better than expected fourth quarter sales and improving finances.
Ad revenue for the quarter jumped 51% to $109 million. Growth year-over-year was robust and the company provided upbeat guidance. Subscription and other revenue rose 74% to $16.1 million. The company also expanded its sales force 40%.
Pandora currently commands 8% of all radio listening, and it's the largest radio station in almost every major U.S. market. Total active listeners is some 67 million.
The company revolutionized the radio industry. Pandora lets users create customized “radio stations” based on their listening tastes. Pandora will assemble a radio station based on songs or artists a user likes by carefully curating a select song list based on a user’s preference.
Users can tune in to listen on desktops or mobile devices. Auto makers have just started putting Pandora’s service in cars. Users are allowed 40 free hours a month. Once that threshold has been reached users receive a warning and can pay a nominal 99 cents for the rest of the month.
But that’s not how the company makes money. It’s ads the company relies on for revenue.
Apart from Apple’s (NASDAQ: AAPL) iTunes, Pandora remains the biggest name in digital music. Rivals include lesser known private names such as Songza and Spotify.
Founder Time Westergren has said in the past that on-demand music sites like Songza and Spotify are “not fundamentally competitive with radio listening” emphasizing Pandora's algorithms and discovery elements that make for a unique listening experience.
Apple is an intimidating competitor as the world’s leading music seller via its iTunes music store. And, the iPhone, iPad, iPod maker has grown further menacing. While its planned music streaming service, dubbed iRadio, has been delayed, Apple is a formidable foe Pandora cannot ignore.
Apple’s radio-like service is set to be a free app that comes with all iPhones and its other mobile devices. It learns what you like and plays a free stream of songs. Apple sneaks in iAds (commercials) in order to cash in from the service.
But Apple, who has antagonized musical artists and record labels in the past, faces licensing negotiations, which have delayed the launch.
As Pandora launches a search for a new chief, Kennedy leaves big shoes to fill. Named CEO in 2004, Kennedy was instrumental in transforming Pandora from a music technology company into a consumer based radio product that launched on the web in 2005. He was a smart, effective and well-liked leader. No chatter yet as who might replace Kennedy.
Which begs the question, “Could Pandora be in play?”
Rumors have swirled that social media giant Facebook (NASDAQ: FB) and internet search behemoth Google (NASDAQ: GOOG) would like to purchase Pandora.
As Facebook morphs into a true mobile company, the addition of Pandora would be music to investors’ ears. Pandora’s growing mobile user base and mobile revenue, up 111% year-over-year, growing faster than the 70% increase in mobile listening hours, would contribute nicely to Facebook’s bottom-line and expanding portfolio. It would also appease shareholders, especially those who have stuck around since Facebook' s fabled IPO which turned into a fiasco. Facebook went public last May at $38 a share, a level not since a few days following the offering.
Facebook bought mobile photo sharing app Instagram for a lofty $1 billion in April 2012, increasing its mobile presence and member count. The social networking leader has also expanded its reach with a new search tool, news feed, gift offering and pay-for-post feature. It continues to try to find ways to keep users engaged and online longer. A tailored radio station would do just that.
Meanwhile Google, is always on the prowl and constantly looking to one-up rivals Apple and Facebook. The search giant could tune into Pandora first for no other reason than to keep it from Apple and Facebook.
With deep pockets, clout and muscle, Google could force Pandora to face the music with an offer too good to down. That could leave investors singing a happy tune.
Diane Alter has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
