What are the prospects for streaming audio stocks?

By Chris Lau for Kapitall.

There is a report that Google ( GOOGL) might be interested in buying Songza, which looks like a move to counter Apple’s ( AAPL) acquisition of Beats Audio. Should these deals make investors bullish on the streaming audio industry? If valuations go up for stocks in this sector, what companies should investors focus on?

Songza valuation

Google could pay just $15 million for Songza, which would be a steal for a company that has 5.5 million active users. By comparison, Pandora ( P) has 77 million users and a market capitalization of $5.3 billion (based on a June 6, 2014 closing price of $25.58). Google’s possible move either implies Pandora is not worth $5 billion, or that Songza is not in a competitively strong position in the market.

Compared to online giant Netflix ( NFLX), Pandora is down in the last six months.

Netflix is a good company to compare to Pandora, because its price / sales is lofty at 5.6, but still lower than that of Pandora (which is at 7.9).

Pandora has high valuation

Even though Pandora is well off its $40 high, the company does not have a moat or exclusive content. Without any differentiation, investors are holding a risky prospect with shares of Pandora. Still, Google might decide it is worth buying out Pandora to secure an even larger user base. Google is expanding its music service, and both Pandora and Songza would add to the offering for its user base. Google might even want to buy Soundcloud. Twitter ( TWTR) is mulling buying Soundcloud, whose valuation is around $700 million.

Bottom line

Pandora is getting a lift from related takeover talks, but could trade down again if those deals fall through. It would be better for investors to watch the major players on the sidelines for now.

Do you think streaming audio stocks are a buy, or are they over-valued? Use the links below to begin your own research.

Click on the interactive chart to view data over time. 

 

1. Apple Inc. ( AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $472.72B, most recent closing price at $527.55.

 

 

2. Netflix, Inc. ( NFLX, Earnings, Analysts, Financials): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $26.59B, most recent closing price at $447.0.

 

 

3. Pandora Media, Inc. ( P, Earnings, Analysts, Financials): Operates as an Internet radio company in the United States. Market cap at $6.88B, most recent closing price at $37.26.

 

 

4. Twitter, Inc. ( TWTR, Earnings, Analysts, Financials): is a global platform for public self-expression and conversation in real time. It provides various products for users, including Twitter that allows users to express themselves and create, distribute, and discover content. Market cap at $20.23B, most recent closing price at $55.78.

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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