Pandora IPO: Not Yet a Sirius Threat

Pandora (P) is the leader in Internet radio while Sirius XM Radio (SIRI) is the king of satellite radio. While many people consider Pandora and Sirius to be direct competitors, these companies have very different business models and plenty of room for growth in their core businesses. Sirius relies almost exclusively on subscriptions while Pandora earns most of its revenue on advertising. Further, much of Pandora's growth is being driven by users on smartphones while Sirius relies on subscribers tuning in from their cars or at the home or office.

Following Pandora's IPO, stock analysis firm Trefis has a near $10 price estimate for Pandora, which is around 20% below the market price. We value Sirius at $2, which is just slightly ahead of its market price.

Personalized Experience vs. E
xclusive Content

Pandora offers radio that streams personalized channels for each listener based on the pre-set preferences and feedback that he or she provides. Apart from its web-based music platform, Pandora also has apps that are available on Apple's (AAPL) iPhone, Research in Motion's (RIMM) BlackBerry and smartphones that operate on Google's (GOOG) Android OS, which are helping to drive growth in its mobile ad revenues. We estimate that mobile advertising contributes almost 60% of the company's value.

Where it is stepping on Sirius's toes is by developing relationships with auto manufacturers to develop applications that will sync Pandora with a car's stereo systems. It has existing agreements with Ford (F), BMW's MINI (ETR:BMW) and Daimler's (ETR:DAI) Mercedes, and is in talks with several other car companies.

While Pandora is free for users, Sirius uses a subscription model that offers advertisement-free satellite radio services and exclusive content. It features 180 channels of music, sports, talk shows and news that provides a wider selection to its listeners than Pandora. The firm's satellite services are primarily transmitted to users in cars or who use its services in retail locations.

Ad vs. subscription based models

In 2010, ad-generated revenues accounted for 87% of Pandora's total revenues and only 2% of Sirius's revenues. During the same period, subscription revenues represented 86% of Sirius's total revenues and only 13% of Pandora's.

Given that the nature of their services vary in addition to the different distribution and revenue models, we believe that Pandora and Sirius XM can be viewed as complements for now rather than competitors. Pandora would have a difficult time competing with Sirius in offering premium content because Sirius has established relationships with major radio talk show hosts and for major events. On the other hand, Pandora's popularity rides off its "free" and customizable services while Sirius's major selling point is ad-free content.

See our analysis for Sirius XM Radio | See our analysis for Pandora

Trefis is an online investment research platform targeted towards individual and professional investors. Trefis also includes a community of users that can create and share their models and analysis on trefis.com.

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11 Comments

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RAY LEONARD!!

It is time to get (serious) sirus does not cut it , once you hook up with Pandora you will be hooked for good,I switched when sirus merged my favorite station with a poorly ranked station and I was paying to hear crappy music and too many comercials

June 17 2011 at 6:08 AM Report abuse rate up rate down Reply
requiemxartist

i love Pandora! what they don't mention is that when you pay for a subscription (a mere $3 a month @ $36 for the year) you listen completely AD FREE! Also with more "skip songs" per station if there's something you don't want to hear.

I could see how Sirius radio would be the preference for those looking for talk radio. But if you are in it for music, Pandora can't be beat! For example, with Sirius Radio you could tune into a 1980's radio station, and they will play you men at work, to cindy lauper, to wham, micheal jackson, etc (every genre of the 1980's).. But with Pandora, you can think "I want to listen to 80's type music...but like Van Halen!" .. then Pandora will play you other rock/metal music from the 80's with alot of extra Van Halen songs added in, and they would leave out the wham ;) lol

and I listen from my iphone through my car stereo, as well as streaming through my computer when I'm at work, and with apple tv through my reciever when I'm at home.

I'm just sayin... =)

June 17 2011 at 2:21 AM Report abuse rate up rate down Reply
Culinary Dynamic

Pandora is here to stay, who needs to pay to listen to Howard Stern.

June 16 2011 at 8:23 PM Report abuse -1 rate up rate down Reply
Wayne

Why are there no more mortgage fraud articles on AOL's Daily Finance Articles? I miss Abigail Fields.

June 16 2011 at 4:02 PM Report abuse rate up rate down Reply
Howard

I could not part with my XM subscription. It's worth every penny of the monthly fee to not have to listen to 20 minutes of commercials every hour and idiotic "morning zoo" dj's. I haven't listened to a local FM station in years. Good riddance.

June 16 2011 at 3:26 PM Report abuse +1 rate up rate down Reply
pemphantom

Madness!!!

June 16 2011 at 2:51 PM Report abuse rate up rate down Reply
Frank

Looks like another IPO sham for those able to get in at the IPO allocation. I imagine many of them flipped the stock yesterday at $23-26 a share and made out quite well. Of course the usual common retail investor who may have been sucked in at those prices is now pretty screwed.

June 16 2011 at 12:42 PM Report abuse +1 rate up rate down Reply
charpist5

I've never heard of these companies, so I must be SIRIUSLY out of the loop (lol)

June 16 2011 at 12:23 PM Report abuse +2 rate up rate down Reply
bhbbrew

If I wanted to listen to adds I would turne in mainstream radio. The whole reason I have SiriusXM is so I dont have to hear all that crap. Well worth the money!

June 16 2011 at 10:37 AM Report abuse +3 rate up rate down Reply
1 reply to bhbbrew's comment
bcopleyjigs

I agree 100% bhbbrew. Regular fm radio is unbearable after subscribing to Sirius.

June 16 2011 at 2:12 PM Report abuse +2 rate up rate down Reply
1 reply to bcopleyjigs's comment
linemannj

I totally agree, haven't listened to "terrestrial" radio in years, even have the internet service so I can listen on my Android phone when I am not in my car and want to listen, such as the gym, etc

June 16 2011 at 10:49 PM Report abuse rate up rate down