Pandora, the internet radio site, has been told by hedge fund Corvex Management—its largest shareholder—that it should think about selling itself, the New York Times reported yesterday (May 16).
Corvex is led by Keith Meister, a protege of famed activist investor Carl Ichan, and the group published a letter late last night, suggesting that Pandora’s executive team is ”pursuing a costly and uncertain business plan,” and would be better off selling the business to another company. In the letter, the group wrote of Pandora’s decision to reappoint its former CEO Tim Westergren:
Exacerbating the situation, Mr. Westergren’s public statements after his appointment as CEO appear to indicate a “business as usual” approach at best, while at worst they suggest an unwillingness to consider a sale regardless of the price offered to shareholders or the cost and uncertainty inherent in a standalone business plan.
The group asked why the new CEO has yet to purchase stock in the company if he is so bullish on Pandora’s future, suggesting that perhaps the service might not provide the most value to stockholders as a standalone service:
Let us be clear – it remains our firm belief that the company should immediately explore the potential value to shareholders that could be realized in a sale transaction, and to evaluate the results of a fulsome sales process against other options including the risk-adjusted value of continuing to operate on a standalone basis.
The underlying question here is whether Pandora is still a viable product. When the web service first launched in 2005, it was pretty revolutionary. It was a computer algorithm, not a person, that could essentially guess what sort of music you’d be interested in listening to (based on an artist or a genre you selected), and then create a never-ending radio station based on your tastes. In 2016, however, every music streaming service—Spotify, Apple Music, Google Play Music, and the rest—can do this. It’s essentially just a single feature of these services, which also let you just listen to artists, albums, and user-created playlists.
Pandora has tried to diversify its business: It recently bought the remnants of the shuttered streaming service Rdio, and spent $450 million on the ticketing company Ticketfly. But it remains to be seen whether these bets will pay off: Pandora does seem to be gearing up to launch a streaming service from the ashes of Rdio, but that’s a crowded marketplace, where Spotify alone already has 30 million paid subscribers. And ticketing does not seem to have moved the needle too much either; TechCrunch reported that last quarter, TicketFly brought in roughly $23 million in ticket sales, meaning it will have to sell a lot more tickets before it’s going to justify the hefty price Pandora paid for the service.
For its part, Pandora is optimistic about its future. A representative for the company told Quartz:
Pandora is on the cusp of realizing an extraordinary vision: fundamentally changing the way listeners discover and enjoy music, and the way artists build and sustain their careers. Pandora has a profitable core business, combined with a strong balance sheet. We are confidently investing to fully capture the massive opportunity ahead of us.
Our management team is in constant dialogue with shareholders about our business strategy and committed to delivering results and long-term value.