Analysts: What's Next For Pandora

The good news is it finally has Sirius XM on board as a partner, and it’s armed with a lot more cash to fix its struggles. The bad news is that an outright acquisition never materialized. That means Pandora actually has to identify the fix.

According to a report in Barron's, months of speculation ended on Friday as satellite radio provider Sirius XM announced a $480 million strategic investment in internet radio service Pandora in exchange for preferred shares and three board seats. Pandora also sold off its Ticketfly business to Eventbrite for $200 million.

So what’s next for the internet radio pioneer? Analysts offered competing visions on Monday:

• Anthony DiClemente of Nomura believes Pandora, armed with almost $700 million in cash, will accelerate its efforts to produce and scale an on-demand subscription streaming offering similar to Spotify or Apple Music. Securing the rights to stream music content requires large upfront payments and DiClemente expects them to increase in the future. Pandora will also need the cash to promote and support free trials of its new service.
• Analysts from FBR and Oppenheimer expect that Pandora will return its focus to its traditional ad-supported radio streaming service, rather than trying to compete with Spotify. Pandora is already the largest player in the U.S. with 72 million monthly active users, equivalent to 10% of radio listening. But that translates to just 2% of radio advertising, writes FBR analyst Barton Crockett. “Ad share should trend towards listening share.” Crockett points out that Sirius parent Liberty Media has a strong preference in Pandora’s direction: “Liberty/Sirius has made it clear that it loves Pandora’s ad-based service and is deeply skeptical of on-demand.”

The analysts all agree that Sirius XM and Pandora have synergies that make the partnership greater than the sum of its parts.

Sirius XM could distribute some of its original content on Pandora radio, turning Pandora listeners into paid Sirius XM subscribers. Sirius XM could give Pandora better access to car infotainment systems and the two could join forces to negotiate better deals for content rights from music owners.

Sirius XM, meanwhile, which has 31.6 million subscribers should benefit from Pandora’s larger listener base. Finally, analysts hope that Sirius XM’s leadership -- with the backing of media mogul John Malone -- can fine tune Pandora’s management team.

Pandora did not respond to a request for comment about next steps.