Investors don't have Pandora (P) to kick around anymore. Sirius XM Holdings (SIRI 0.52%) closed on its purchase of the streaming music pioneer on Friday. Every share of Pandora was swapped out for 1.44 shares of Sirius XM just three days after Pandora shareholders voted overwhelmingly in favor of the corporate combination.
We never got to hear Pandora's fourth-quarter financials, and it's probably just as well. It would've been more of the same. Another period of declining usage and red ink would've been partly bailed out by overall top-line growth on the strength of improving premium subscription sales and ad-fueled monetization.
Check out the latest Sirius XM earnings call transcript.
Changing the key
Pandora stock did beat the market last year. Investors were treated to a scintillating 68% return in 2018. However, those gains were largely the result of investors expecting the eventual Sirius XM buyout. The stock would've had to nearly triple to make back its slide in 2017, and the shares had actually fallen sharply in each of the four previous years before last year's bounce.
Recent Pandora investors may feel as if they came out as winners, but the stock's final trade at $8.38 is just a little more than half of its $16 IPO price from mid-2011. The good news for Pandora investors is that they are being inherited by media royalty. Sirius XM has been a surprisingly consistent gainer since bottoming out in early 2009. Investors have been treated to positive returns with Sirius XM for 10 consecutive years.
Pandora investors wondering about the viability of the music discovery innovator no longer need to worry about red ink and shrinking audiences. Sirius XM is consistently profitable, generating more than enough free cash flow -- roughly $1.5 billion a year -- to eat into all of Pandora's near-term challenges.
Pandora investors may wonder why they are only getting 8% of the combined company this month. Pandora's revenue is a quarter of Sirius XM's take, and some aspects of Pandora's business are actually growing faster than Sirius XM's operations. However, with Pandora struggling to turn a profit and facing sequential declines in listeners, it's easy to see why any exit strategy was a good call over just letting the slow fade play out.
Sirius XM should be able to help Pandora's business. The satellite radio giant is already talking about bundling the offerings in new audio packages, hoping to turn more of its Sirius XM self-pay subscribers into premium subscribers for Pandora. There will be other cross-promotional opportunities. Sirius XM gives Pandora its best shot at succeeding as a platform, and therefore as an investment to Pandora stakeholders that now own a piece of Sirius XM since Friday.