Today's stock market
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Energy stocks surged on an increase in crude oil prices, with the Energy Select Sector SPDR ETF (NYSEMKT:XLE) up 2.5%. Financial stocks continued their rally, buoyed by the prospect of deregulation, and the Financial Select Sector SDPR ETF (NYSEMKT:XLF) gained 1.9%.
As for individual stocks, Pandora Media (NYSE: P) made waves after the music-streaming pioneer announced a deal, and VeriFone (NYSE: PAY) slumped following the payment-machine specialist's quarterly earnings report.
Pandora Media strikes a deal with Sirius XM
Pandora Media canceled an arrangement with private equity firm KKR and instead linked up with Sirius XM (NASDAQ:SIRI) in a $480 million deal. Shares initially rose 6% on the news but closed for the day up only 1.2%.
A deal between the two companies had been a matter of speculation in recent weeks, but the possibility seemed to be off the table when the company announced last month that it had accepted a $150 million investment by KKR.
Yesterday, Pandora released a statement that it was delaying the closing of the KKR deal, and today the reason for that was revealed. Sirius XM will be purchasing $480 million in newly issued convertible preferred stock of Pandora. The stock will bear a 6% dividend, which Pandora can pay either in cash or in more convertible preferred stock. Pandora also announced it is selling its Ticketfly business to Eventbrite for $200 million.
Both companies should benefit from the deal. Pandora gets a needed infusion of cash, plus access to Sirius XM's advertisers, something that could be significant, as the company has struggled to monetize its popular internet radio service. SiriusXM, which had been rumored to be interested in Pandora last year, will strengthen its presence in internet streaming.
Jim Meyer, CEO of SiriusXM, commented in the press release:
This strategic investment in Pandora represents a unique opportunity for SiriusXM to create value for its stockholders by investing in the leader in the ad-supported digital radio business, a space where SiriusXM does not play today. Pandora's large user base and its ability to provide listeners with a personalized music experience are tremendous assets. With its strong technology and new product offerings, we believe there are exciting opportunities for Pandora to accelerate its growth and increase value for Pandora and SiriusXM stockholders.
VeriFone's shrinking in order to grow
Electronic payment system provider VeriFone reported earnings last night, and investors responded by sending the stock down 3.5%. Revenue for the fiscal second quarter was $474 million, up 4% from last year, with a loss of $0.80 per share on a GAAP basis. Non-GAAP earnings, excluding items such as restructuring and divestiture expenses, came in at $0.30 per share. The results for both the top and bottom lines were above analyst expectations, but investors were not happy with the view going forward.
"The Verifone team delivered second quarter results at the high-end of our revenue forecast and above our earnings guidance. ... We are excited about the level of client enthusiasm globally for our next generation platform-based solutions," said CEO Paul Galant. "We are divesting non-strategic businesses and allocating our resources and capital to ensure the timely delivery of our new products, returning Verifone to growth in 2018."
VeriFone is in the process of restructuring and shedding underperforming segments, and there was more news on that front yesterday. Last quarter the company spun off its Pump Media business to form a joint venture with Gas Station TV to deliver video advertising to pumps at gas stations. Yesterday the company announced plans to divest its China operations to a locally owned company in which Verifone will have a minority interest. It also has decided to divest its platform for taxi transactions and media, although a buyer has not yet been found. Partly as a result of these changes, the company gave guidance for the full year that was below what the market was expecting.
VeriFone hopes that innovation in its core business of point-of-sale terminals and the service platform that supports them will eventually pay off in reinvigorated growth. Its new Carbon 8 portable terminal for restaurants and hotels is the second device in a new family of products expected to make an impact. International expansion, despite the China news, still holds promise for the business. Investors apparently want to see more evidence that the moves to shrink the business are paying off.