The music industry has continued featured hasty team-ups — above Police frontman Sting and the perpetually “boombastic” reggae artisan Shaggy put out an anthology calm this year, for example. But Monday, that duo was agape out of the alive for best absorbing agreeable bond of 2018 by account that Sirius XM (NASDAQ:SIRI) was purchasing Pandora for $3.5 billion in stock.
In this articulation from the Market Foolery podcast, host Mac Greer and chief analyst Matt Argersinger altercate the deal, which had continued been apparent as a possibility, accustomed that the accessory radio business already endemic a 15% allotment of the music streamer. Sirius shares sank on the news, but there’s acumen to accept that the post-merger accomplished absolutely will be greater than the sum of its parts.
A abounding archetype follows the video.
This video was recorded on Sept. 24, 2018.
Mac Greer: Let’s activate with the big accord of the day: Sirius XM is affairs Pandora in a $3.5 billion all banal deal. Sirius XM already endemic 15% of Pandora. They’re aloof affairs up the rest. Shareholders, not too accursed up. Sirius XM shares bottomward about 8% at the time of our taping. Now, you’re a Pandora shareholder. How are you feeling?
Matt Argersinger: I don’t apperceive how I’m declared to feel, Mac. [laughs] It’s been a long, boxy several years for Pandora. I’ve been a actor for several years now. You affectionate of knew the abeyant for this was absolute aloof because Sirius XM had the boyhood stake. There was consistently allocution about them affairs up the blow and amalgamation the companies. As a Pandora shareholder, I feel like this is aloof the end of a sad story. At atomic I accept an end to it now.
Greer: It’s a sad song, if it were a song.
Argersinger: Right. And the catechism is, aback it’s an all banal deal, how aflame am I about owning Sirius XM shares? I assumption I’m somewhat added excited, if I’m a Pandora actor activity into Sirius XM. Sirius XM has 36 actor paid subscribers. It’s a appealing acknowledged business. We talked about afore the show, a business that was absolutely aing to death. What did it barter for?
Greer: It got bottomward to about $0.11 in 2009. It was a penny stock, right?
Argersinger: It was the actual analogue of a penny stock. And it was loaded bottomward with debt. But it’s appear aback and it’s actual successful. One of the affidavit is because it has those abiding relationships with the car manufacturers. Generally, if you buy or hire a car, these days, you accept the advantage of accepting Sirius XM. And it’s proving to be a actual accepted option. You get it for chargeless for the aboriginal balloon period, and again a lot of users are converting to it. They like it. I like it. I absolutely accept Sirius XM on one of my cars.
You accept the 36 actor paid subscribers for Sirius. Then, you accept 70 actor account alive users for Pandora. I anticipate the abstraction is, for Sirius, if we can get a acceptable allocation of those 70 actor alive users — now, I apperceive Pandora already has six actor advantageous subscribers. But I anticipate what they’re absolutely activity afterwards is how abounding of those alive users that are aloof alert to Pandora for chargeless with ads, how abounding can we catechumen to a paid cable in a accumulated Sirius XM-Pandora app?
I anticipate they think, accustomed the bulk of library that we accept in Pandora, but again accumulation it with Sirius, which has, of course, sports and ball and alive contest and music, it could be a appealing acute product. It ability attempt with the brand of Spotify, Apple, Amazon, some of those massive platforms. They’re acutely big aggressive threats.
Greer: Let’s allocution about that a bit more. You mentioned the stock, let’s annular that out. Sirius XM shares barter for arctic of $6 now. So, $0.11 in 2009, to arctic of $6. I bethink talking to our actual own Steve Broido, who bought the shares of Sirius XM aback they were a penny stock. I bethink thinking, “That’s crazy!” And typically, normally, it is. Right? Best penny stocks go to zero.
Argersinger: 99 out of 100.
Greer: So this is the barring to the rule.
Argersinger: Actual big exception.
Greer: But I anticipate aback you attending aback at Sirius XM, one bright differentiator in agreement of their programming, Howard Stern. I anticipate you could actual abundant accomplish the altercation that Howard Stern alone adored this company.
Argersinger: Yes. And they paid him hundreds of actor dollars to do it.
Greer: And it was a abundant investment, right?
Argersinger: Oh, yeah, it was.
Greer: But Howard is activity to retire at some point. Obviously, they’ll accept that agreeable for a assertive cardinal of years, and they can epitomize that agreeable aloof like the epitomize Casey Kasem. I accept to the top 40 from the 70s, that’s my accusable amusement on weekends. But activity forward, if Howard’s not in the picture, what is Sirius XM’s appropriate booze aback they’re aggressive with the brand of an Apple or a Spotify?
Argersinger: Well, it’s activity to be tough. I anticipate the accord actuality is, Sirius and Pandora face amazing ability costs for artists, for labels, to comedians, and things like that. If you calibration that out — in added words, you amalgamate these two adequately affluent libraries of agreeable — and you absolutely accumulate your costs, because now you’re overextension your costs over a abundant beyond subscriber base, I anticipate they can accept a appealing acute offer. Especially aback you articulation it to the cars or bodies who are on the go area radio is aloof not a abundant option. It can be absolutely acute option. So now, if I amalgamate that with my Pandora music, it’s article I anticipate a lot of users are accommodating to pay for. Really, to accomplish this accord work, you don’t charge a huge allotment of that 70 actor alive user abject of Pandora to catechumen over afore it starts attractive like a acceptable deal.
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