partnership with iHeartRadio and Spotify Strategic buyers might be interested

Partnership with iheartradio and spotify strategic

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partnership with iHeartRadio and Spotify Strategic buyers might be interested in acquiring Pandora for certain synergies that we as a financial buyer cannot achieve
Market Methods Intrinsic Value Verdict Overview Our Decision Due to the following reasons, we have decided to pass on the opportunity to invest in Pandora. 1. Through our rather optimistic DCF analysis, we have calculated Pandora’s intrinsic value to be $12.07 per share. Considering that Pandora’s current share price is $7.95 and that we would likely have to pay a premium to acquire a large stake in the company, our upside would be capped at around 50%, which we consider low. 2. The likelihood of increased competition in the near future is very sizeable, as Spotify continues to grow and alter its business model and large players such as Google and Apple consider entering the space. 3. The digital radio space continues to be affected by adverse legislation, especially in regards to content acquisition costs. Future legislation could further decrease Pandora’s profitability. 4. We have no synergies to gain from an acquisition of Pandora and could face a potential bidding war from strategic buyers if we decide to make an offer.
Appendix
Market Methods Intrinsic Value Verdict Overview Benchmark Analysis Revenue Growth Historical Gross Profit Historical NWC Historical Capex Historical D&A Company FY - 3 FY - 2 FY - 1 LTM FY - 3 FY - 2 FY - 1 LTM FY - 3 FY - 2 FY - 1 LTM FY - 3 FY - 2 FY - 1 LTM FY - 3 FY - 2 FY - 1 LTM ($ in millions) Internet Retail Netflix Inc. 13% 22% 29% 2% 454.4 591.0 805.3 1034.5 (153.2) (135.3) (99.7) (171.6) (43.8) (45.9) (33.8) (32.9) 32.5 38.0 38.1 45.3 Amazon.com Inc. 29% 28% 40% 5% 4270.0 5531.0 7643.0 13591.0 (2257.0) (3933.0) (5387.0) (4735.0) (333.0) (373.0) (979.0) (2309.0) 115.0 158.0 279.0 1409.0 High 29% 28% 40% 5% 4270.0 5531.0 7643.0 13591.0 (153.2) (135.3) (99.7) (171.6) (43.8) (45.9) (33.8) (32.9) 115.0 158.0 279.0 1409.0 Average 21% 25% 35% 4% 2362.2 3061.0 4224.1 7312.7 (1205.1) (2034.1) (2743.3) (2453.3) (188.4) (209.5) (506.4) (1171.0) 73.7 98.0 158.5 727.2 Median 21% 25% 35% 4% 2362.2 3061.0 4224.1 7312.7 (1205.1) (2034.1) (2743.3) (2453.3) (188.4) (209.5) (506.4) (1171.0) 73.7 98.0 158.5 727.2 Low 13% 22% 29% 2% 454.4 591.0 805.3 1034.5 (2257.0) (3933.0) (5387.0) (4735.0) (333.0) (373.0) (979.0) (2309.0) 32.5 38.0 38.1 45.3 Broadcast Radio SIRIUS XM Radio Inc. 80% 49% 14% 3% 800.5 1408.6 1717.8 2062.9 (1598.8) (1586.5) (1748.8) (987.9) (130.6) (248.5) (311.9) (95.9) 168.0 232.9 207.4 211.5 Entercom Communications Corp. -6% -15% 5% 0% 162.6 118.4 132.6 130.4 48.5 55.0 55.5 49.8 (8.6) (2.5) (2.7) (3.5) 16.3 15.1 11.4 10.0 Saga Communications Inc. -3% -14% 6% 0% 34.2 26.2 35.1 37.0 13.4 11.9 11.0 11.7 (7.1) (4.0) (4.3) (5.3) 8.8 8.6 7.7 7.3 Fisher Communications Inc. 7% -24% 32% 0% 104.0 67.6 103.8 95.8 13.4 32.5 19.1 (76.2) (10.3) (11.6) (10.0) (10.6) 12.5 13.4 14.2 6.7 Nexstar Broadcasting Group Inc. 7% -12% 24% 5% 206.6 174.7 235.0 260.7 15.0 31.2 31.0 24.4 (30.8) (19.0) (13.8) (13.5) 21.0 21.7 21.1 23.2 LIN TV Corp. 1% -18% 25% 8% 281.3 223.3 289.0 323.2 1.8 24.3 28.5 42.0 (28.5) (10.1) (17.4) (27.8) 29.7 28.6 27.0 27.3 Cumulus Media Inc. -5% -18% 3% 16% 108.3 90.4 103.5 428.3 26.8 29.3 22.9 123.1 (6.1) (3.1) (2.5) (8.5) 12.5 10.8 8.9 105.7 CC Media Holdings Inc. -3% -17% 6% 0% 3784.2 3022.5 3484.0 3730.4 536.5 609.4 420.4 674.7 (430.5) (232.1) (257.6) (411.1) 488.2 423.9 400.6 425.2 High 80% 49% 32% 16% 3784.2 3022.5 3484.0 3730.4 536.5 609.4 420.4 674.7 (6.1) (2.5) (2.5) (3.5) 488.2 423.9 400.6 425.2 Average 10% -9% 14% 4% 685.2 641.5 762.6 883.6 (117.9) (99.1) (145.0) (17.3) (81.5) (66.4) (77.5) (72.0) 94.6 94.4 87.3 102.1 Median -1% -16% 10% 2% 184.6 146.6 183.8 292.0 14.2 30.3 25.7 33.2 (19.4) (10.8) (11.9) (12.1) 18.7 18.4 17.6 25.2 Low -6% -24% 3% 0% 34.2 26.2 35.1 37.0 (1598.8) (1586.5) (1748.8) (987.9) (430.5) (248.5) (311.9) (411.1) 8.8 8.6 7.7 6.7 Digital Media Distribution Yahoo! Inc. 3% -10% -2% 0% 4185.1 3588.6 3697.1 3421.7 (411.5) (414.0) (164.4) (2233.7) (674.8) (433.8) (714.1) (486.1) 427.8 426.5 447.2 412.7 Blinkx plc 95% 142% 96% 14% 9.8 21.9 43.2 76.1 0.5 3.6 3.9 1.9 (0.7) (0.9) (1.6) (5.6) 0.2 0.4 0.4 1.7 Demand Media Inc. 25% 17% 27% 5% 72.1 83.9 121.6 189.5 (29.2) (30.9) (36.6) (36.3) (20.1) (15.3) (21.4) (16.6) 9.7 14.7 17.6 18.7 CBS Corp. -1% -7% 8% 0% 5299.7 4315.0 5075.0 6172.0 16.8 617.3 916.0 1198.0 (474.1) (262.0) (284.0) (265.0) 413.0 449.0 433.0 418.0 High 95% 142% 96% 14% 5299.7 4315.0 5075.0 6172.0 16.8 617.3 916.0 1198.0 (0.7) (0.9) (1.6) (5.6) 427.8 449.0 447.2 418.0 Average 31% 35% 32% 5% 2391.7 2002.4 2234.2 2464.8 (105.9) 44.0 179.7 (267.5) (292.4) (178.0) (255.3) (193.3) 212.7 222.7 224.5 212.8 Median 14% 5% 18% 3% 2128.6 1836.2 1909.4 1805.6 (14.4) (13.7) (16.3) (17.2) (247.1) (138.7) (152.7) (140.8) 211.4 220.6 225.3 215.7 Low -1% -10% -2% 0% 9.8 21.9 43.2 76.1 (411.5) (414.0) (164.4) (2233.7) (674.8) (433.8) (714.1) (486.1) 0.2 0.4 0.4 1.7 Internet Services (Explorative & Ad-Based) Yelp Inc. NA 113% 85% 13% 11.5 24.7 44.6 112.6 0.0 0.0 1.7 0.0 (1.3) (0.6) (3.6) (5.5) 0.5 0.9 1.7 5.2 Travelzoo Inc. 2% 16% 20% -2% 78.0 88.3 105.5 133.9 3.3 7.3 (1.8) (9.1) (3.9) (2.0) (1.3) (2.6) 0.6 1.2 1.6 1.7 LinkedIn Corp. 142% 52% 102%

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