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Is Verizon (VZ) Mulling Over $100M Investment in Pandora?

According to a recent report by New York Post, U.S. telecom behemoth, Verizon Communications Inc. VZ is considering a strategic option to invest $100 million in online music streamer Pandora Media Inc. P.  Notably, satellite radio service provider Sirius XM Holdings Inc. SIRI has been in discussions to purchase Pandora for a total consideration of about $2.8 billion. Verizon will invest in Pandora if its outright sale to Sirius XM does not materialize.

Verizon is working hard to develop its online digital media business. Its proposed acquisition of Yahoo! Inc. YHOO is currently under regulatory review. The company is planning to unite its AOL division with Yahoo’s core Internet assets under one umbrella – Oath. Management expects Oath’s consumer base to grow from 1.3 billion to 2 billion by 2020. Revenues from this division is also anticipated to reach somewhere within $10 - $20 billion by the same time from the current level of $7 billion.

Moreover, Oath is likely to oversee Yahoo and AOL including its more than 20 brands. AOL Inc. – a major player in the digital content and online advertising space – was acquired by Verizon in Jun 2015. Also the core businesses of Yahoo perfectly complement its core areas of digital platform. We believe that return from the investment in Pandora will be counted in the AOL division. The music streaming service provider had nearly 80 million active users in May 2017.

For quite some time, Verizon has been geared up to acquire some major companies in the digital media space. Notably, the company is systematically diversifying its business model into the digital media platform, targeting the lucrative segments of digital advertising and content creation as well as distribution.

Last September, Verizon teamed up with private media group Hearst Corp. on a number of digital ventures. The company has also launched a segment – ComplexNetworks.com – in a bid to strengthen its digital-video networks.

Meanwhile, Verizon is likely to start an online TV streaming service this summer, according to a recent Bloomberg report. It has decided to come up with dozens of channels nationwide for the new service. Management is currently negotiating with several TV network owners to secure online streaming rights.

Price performance of Verizon

Year-to-date, the stock price of Verizon has witnessed a decline of 13.13% compared with the Zacks categorized U.S National Wireless industry’s decline of 7.34% in the same time period.

Nevertheless, Verizon has a very powerful diversified business model. On the wireless front, it will start initial deployment of the upcoming 5G network in 2018. It is aggressively expanding its fiber-based footprint on the wireline front. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe that these are the primary reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Yahoo! Inc. (YHOO): Free Stock Analysis Report
Pandora Media, Inc. (P): Free Stock Analysis Report
Verizon Communications Inc. (VZ): Free Stock Analysis Report
Sirius XM Holdings Inc. (SIRI): Free Stock Analysis Report
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