Pandora Media Inc (NYSE:P) is wafting up 2.5% on a day the S&P 500 is trading erratic-to-flat. The strength comes on the back of Friday’s news that the company is nearing a deal to bring on-demand streaming to Pandora users for the first time. While a potential merger could provide P stock holders with downside protection in the event the service tanks.
Currently, Pandora differs from Spotify and Apple Inc. (NASDAQ:AAPL) Music in that it only lets users listen to stations filled with random music similar to their specific tastes.
Its sole subscription fee is an ad-free option for $5 a month, attracting 4 million paying customers versus 30 million for Spotify, 11 million for Apple Music and 3 million for Tidal.
The service, expected to roll out first in the U.S. and later in other English-speaking countries, could be here in as little as a month. It’s speculated to cost a competitive $10 per month.
Closing the deal requires the company to reach an agreement with record labels to allow for both domestic and international on-demand streaming. And as The Wall Street Journal notes, Pandora hasn’t exactly had the permission of record companies to use their music since the service doesn’t let users pick and play.
Following this news, FBR Capital maintained its “overweight” rating on P stock and $16 target, noting that shares of Pandora are protected on the downside by a potential merger.
For instance, instead of outright buying P stock, Pandora and Spotify could merge and trade separately. Whether its on-demand subscription service lives up to expectations isn’t material in this regard. The view has merit, as Pandora previously entertained a takeover bid from Liberty Media Group (NASDAQ:LMCA) before ultimately passing.
P stock is now up about 40% over the last six months and well above support at $12.71 as buying heats up.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
