Pandora boosts stock offering as shares hit high
LOS ANGELES • Pandora stock hit an all-time high Thursday in the wake of a court ruling that should help the Internet radio giant trim its songwriter royalty costs.
On the heels of the ruling, the company also moved to raise more money from investors in a stock sale. On Thursday, Pandora Media Inc. increased the number of shares it is offering to the public and raised the offer price to $25 from $23.99. That could net it as much as $379 million, $100 million more than a plan it unveiled three days ago and more than triple the $91.7 million it raised with its initial public offering of stock in June 2011.
The bolstered offering suggests there is strong demand for shares of the Oakland, Calif.-based company as revenue from listening on mobile devices grows. The offering comes as stock markets got a lift this week from the Federal Reserve's decision not to pull back its bond-buying stimulus program.
B. Riley analyst Sameet Sinha said a number of factors are going Pandora's way. Tuesday's ruling by a district court in New York prevents music publishers from trying to cut better deals outside of the songwriting society known as ASCAP. Combined with the company's move in June to buy a radio station in South Dakota, Pandora should be able to cut its royalty costs by $4 million to $5 million next year, Sinha said in a research note Thursday.
The company paid 58 percent of its revenue, or $164.7 million, in royalties in the first half of its fiscal year through July.
Wall Street has also welcomed Pandora's new CEO, Brian McAndrews, who was appointed last week. The digital advertising executive may be able to further boost the company's mobile advertising growth. And the release of Apple's iTunes Radio on Wednesday to existing iPhone and iPad owners was not seen as having a huge competitive impact.
"If you take these things combined I think you see the momentum behind them continues to grow," said Sinha, who has a "Buy" rating on the shares and a $29 price target.
Goldman Sachs analyst Heath Terry also raised his price target on Pandora shares, by $1 to $30, on Thursday, saying funds the company raises through the share offering are likely to be used on new initiatives that will accelerate growth.
Shares rose $1.40, or 5.5 percent, to $27.04 in midday trading. They peaked earlier Thursday at $27.21 and have nearly tripled this year.
The company now plans to offer 13 million shares, up from 10 million, and make 2.7 million available if there is extra demand, up from 2 million previously. Major shareholder Crosslink Capital Inc. will sell 5.2 million shares, up from 4 million previously, cutting its stake from 16.5 percent to 12.6 percent.
Investors shrugged off the fact that the new share offering could increase the outstanding share count by up to 9 percent, diluting shareholders' share of future profits.