Most Publicly-Traded Music Companies Had a Tough Financial Year

Robert Sillerman
SFX Entertainment

Robert Sillerman of SFX Entertainment

Patience grew thin with music-related stocks in 2014 as investors instead favored the more established music-related companies their established business models. Market leader Live Nation soared, but SFX Entertainment, the work-in-progress EDM promoter, lost investors' original enthusiasm. Shares of cash-rich SiriusXM basically broke even while Pandora, the leader of the new radio business, tumbled as investors (continue to) wait for profits.

How best to take these graphs and analysis? Bear in mind that stock prices are best thought of as a referendum on a company's future, not its past.

Pandora (NYSE: P)

2013 close: $26.60
2014 close: $17.83
2014 change: -33.0 percent

Change from 2014 high of $40.44: -55.9 percent

Theme: Tired of waiting.

Once an Internet stock darling, Pandora finished the year 55.9 percent down from its 2014 high, and has dropped another 8.4 percent thus far in 2015, in spite of continued growth. Revenue was up 68.9 percent over the last four quarters (ended Sept. 30th) and listening hours rose 25.1 percent.

Why the precipitous decline? Some analysts have voiced concerns that the Copyright Royalty Board will raise webcasting rates to an extent that Pandora's bottom line will suffer. Publishers are fighting tooth and nail for higher royalties. And there is constant worry that Pandora is losing listeners to competitors such as iTunes Radio and Spotify. A major factor on the share price was slowing listener growth. The company added just 3.8 million active listeners -- a 5.2-percent increase -- over the 12 months ended September 30th. However, those listeners are spending more time with Pandora as listening hours per active user increased 18.9 percent from the prior-year period.

Will Pandora keep its momentum? Morgan Stanley analysts expect the listener-hour growth rate to drop by about half in 2015. In-car listening, a future goldmine, probably won't deliver a big increase this year. A newfound push for industry relations and a redesigned app could help on the margins. It will come down to Pandora's steadily increasing its advertising revenue, to drive both the bottom line and investor sentiment.

Live Nation (NYSE: LYV)

2013 close: $19.76
2014 close: $26.11
2014 change: +32.1%

Change from 2014 high of $27.42: -4.8%

Theme: The biggest got bigger.

What does the world's largest promotion, ticketing and artist management company do to improve? Fill in the gaps.

Last year, Live Nation made a bold move into artist management -- and filled a hole left by the departure of Irving Azoff at the end of 2013 -- by partnering with Maverick, a consortium of managers of such heavyweights as U2, Pharrell, Alicia Keys and Jason Aldean, among others. It bulked up its festival portfolio with the acquisition of C3 Presents, the company behind Austin City Limits and Lollapalooza, among other events. It also acquired do-it-yourself ticketing service Eventjoy.

Live Nation's stock price reflects the health of the live entertainment business. Although the economy isn't great -- despite stocks' positive performance -- and unemployment is a nagging problem, but people are willing to pay for live music.

SFX Entertainment (Nasdaq: SFXE)

2013 close: $12.00
2014 close: $4.53
2014 change: -62.3%

Change from 2014 high of $11.39: -60.2%

Theme: Some assembly required.

SFX was saddled with high expectations from the start. When the EDM-focused promoter went public in October of 2013, the stock price fell below the initial public offering price of $13 per share -- the price set by the underwriting banks -- on the first day of trading. Although SFX rebounded and finished the year at $12, its share price spent 2014 on a downhill course and finished at $4.53, a 62.3-percent decline from the 2013 close. Those high expectations have been dashed. SFX's financials are (obviously) a work in progress, as the company pieces together promoters and online properties while bringing aboard brand sponsors -- Robert Sillerman's playbook in action. Strong brands will be the fuel for a recovery. SFX's Tomorrowland festival will expand to Brazil this year, and the acquisition of 50 percent of Rock in Rio, completed in late 2013, should pay dividends this year.

SiriusXM (Nasdaq: SIRI)

2013 close: $3.59
2014 close: $3.50
2014 change: -0.3%

Change from 2014 high of $3.89: 10.3%

Theme: Keep on keeping on.

The threat of Internet radio and on-demand services doesn't appear to have dented Sirius XM's share price. The satellite radio company kept doing what it does well in 2014: maintaining a dominance of premium, in-auto listening and the sales network that supports it.

Sirius XM bested its expectations for subscriber growth -- 1.75 million net additions raised subscriptions to 27.3 million in 2014 -- and expects to add another 1.2 million this year. The financials will be strong again this year. The company forecasts revenue of $4.4 billion and adjusted EBITDA of $1.6 billion.

The rise of Internet radio will eventually become a greater threat. CEO Jim Meyer expects 70 percent of new cars will have web access by 2020. In the near term, the biggest threat could be a departure of Howard Stern after his contract ends at the end of this year.