The agreement, bringing together two large streaming-music players, is set to commence in 2019. SoundCloud and Pandora have a combined U.S. audience of more than 100 million unduplicated listeners, with just 13% overlap between the two companies. Under the partnership, marketers will be able to purchase SoundCloud’s U.S. ad inventory directly through Pandora as well as tap into its targeting data and programmatic-advertising system.
The new agreement expands SoundCloud’s existing global relationship with AdsWizz, the audio-advertising tech company Pandora acquired earlier this year for $145 million.
SoundCloud, founded in 2007, made the transition last year from a free service to a partially paid one. In mid-2017 the New York-based company was running short on cash — and in danger of closing its doors — before receiving a $170 million lifeline from Raine Group and Singapore-based investment company Temasek in August 2017. SoundCloud also named Kerry Trainor, formerly Vimeo’s CEO, as chief exec.
Pandora, meanwhile, is the target of a takeover bid by SiriusXM valued at $3.5 billion. But SiriusXM investors reacted negatively to the proposed all-stock deal, pushing its shares down 10% and implying a deal price below Pandora’s share price prior to the deal’s announcement. Wall Street analysts expect Pandora and SiriusXM to renegotiate terms — or potentially that Pandora will find a higher bidder.
Given that the exchange ratio is fixed, the sell-off in SiriusXM shares in Monday’s trading session (to $6.26, down 10.3% for the day) implies a deal price of $9.01 or so, which is a discount of 0.8% to Pandora’s closing price on Friday of $9.09. We think that shareholders will reject the deal as inadequate, and will require the terms of the deal to be re-negotiated. The agreement includes a “go-shop” provision that allows Pandora and its Board of Directors to explore other proposals.
The market opportunity for audio ads is expanding, thanks to the rise of streaming music, podcasting and smart speakers. According to research from trade group Interactive Advertising Bureau, digital audio advertising hit $1.6 billion in 2017, up 40% year over year.