I'm a bit of a noob here as well, but my stab at it would be:
1) They have lots of customers. I work in the music industry and have insight into how much money Pandora brings in. They might not be _profitable_ but there's definitely a lot of cash flowing there, meaning profitability isn't out of the question.
2) Technology and fit with existing business - SiriusXM has lots of curated and exclusive content. With a Spotify-like platform in Pandora, they can get some of that content infront of more streamers and diversify Pandora. The only streaming service with Howard Stern, and the only one that you can stream directly to your car over Sattelite without using data? That's compelling for a lot of people.
Pandora brought in $1.4 billion in revenue in 2017, and will have even more revenue in 2018.
Of course, licensing rates means that the company only gets to see a few hundred million of that, and a significant portion of that needs to go to advertising sales personnel -- audio advertising is incredibly hands-on compared to other forms of internet advertising.
As an aside: it was interesting when the stock cratered last year to the point where the market cap of the company was lower than its annual revenue -- all the revenue in the world doesn't make up for negative margins.
> As an aside: it was interesting when the stock cratered last year to the point where the market cap of the company was lower than its annual revenue -- all the revenue in the world doesn't make up for negative margins.
Yup, revenue doesn’t really mean anything; Walmart’s market cap is less than their 2017 revenue.
People always yell at me when I say this but what if we lower corporate tax rate and tax revenue instead of profits? Does it encourage companies to get even bigger and do everything in house?
It takes a competing company that is actually (very) profitable and believes it can successfully monetize the 70 million users Pandora claims to have.
My gut feeling is that this will be one of countless such acquisitions that‘ll turn out to be bad for both users and the acquiring company in the next couple of years. There‘s a reason why Pandora isn’t profitable in a market where others make 100‘s of millions in profit every year.
Business valuation is usually a multiple (3x, 5x, 10x) multiplied by a certain metric such as revenue, net income (can be before tax and interest) or free cash flow with considerations for growth. [Can also include current market cap if they're public or previous estimated valuations as benchmarks]
Plus or minus any assets that can be made liquid/sold for cash which haven't been depreciated totally or can be still used by the new company.
Strategic considerations also factor in customer/user base, current relationships with buyers/suppliers, technical know-how and market share which can boost or decrease the valuation.
Liabilities and the general riskiness of the transaction/merger such as debt can also factor in, so a financially healthy company is worth more.
After all that, it will depend on negotiating power/how much SirusXM wants Pandora and if there are also other potential buyers bidding for the company. If say Apple Music started bidding for Pandora, SiriusXM and Apple Music could keep one-upping each other so that the price increases.
You can google things like Enterprise Value, Discounted Cash Flows, etc. but they're a bit advanced and based on the principles I've mentioned.
users, and their generated data along with the potential to monetize whatever service they are consuming, is the new "revenue"
they can also integrate the tech to be more competitive, or they can shut the service (currently a competitor) down and hope to pick up a portion of those listeners