We compared Pandora (P) with Sirius XM (SIRI) and terrestrial broadcast giant Cumulus Media (CMLS), since most of the other companies are unlisted subsidiaries of large corporations such as Google’s Play Music All Access, Clear Channel (CCMO)’s iHeartRadio, and Apple’s (APPL) iTunes Radio. Peer Spotify is yet to be listed.
Cumulus appears to be the cheapest of the three with an 18.1x P/E. Satellite radio giant Sirius XM is facing competition in the automobile space with the entry of Pandora and Apple’s CarPlay. Shares saw an impact on the news that iTunes Radio reached a deal to stream National Public Radio. Sirius XM has 25.6 million subscribers and broadcasts commercial-free music, premier sports talk and live events, comedy, news, exclusive talk, and entertainment. It currently trades at a P/E of 37.5x. Sirius expects adjusted EBITDA growth will continue to exceed 20% in 2014 with investments in new products and technologies such as connected vehicle services business that was acquired from Agero. It said free cash flow will approach $1.1 billion, and expects net subscriber additions of 1.25 million and $4.0 billion revenue in 2014.
A study by Generator Research titled Digital Music Subscription Services: 2013 cited by hypebot suggested that subscription music services like Spotify and Pandora are on track to double by 2017, but will never turn a profit. The analysis noted that the obstacle to profitability for streaming music is the 60-70% of revenue each service pays to labels, publishers, and artists. The report said survival solutions may include sale to a larger company with more resources or inclusion of value added services similar to iTunes Match from Apple.
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