• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / U.S. Equity

A Look at The Buyout Prospects of Pandora, Yelp and Other Rumored Targets

Though tech M&A activity has cooled a bit, it certainly hasn't evaporated. Here's a look at the buyout prospects for some companies whose names are in the M&A rumor mill.
By ERIC JHONSA
May 12, 2017 | 09:22 PM EDT
Stocks quotes in this article: P, LMCA, YELP, IAC, CTXS, FEYE, NTNX, CY, OCLR, FNSR, NPTN, LITE, AAOI

With the Nasdaq up 30% over the past 12 months, higher valuations seem to be slowing the pace of tech M&A activity. But as 2017 deals for firms such as Mobileye, AppDynamics, Angie's List, Nimble Storage and Jive Software show, the market is far from dead. A lot of the deal activity has involved beaten-up names sporting reasonable multiples, but by no means all of it.

Here's a look at some tech names that have either been featured in M&A rumors, or for which there has been deal speculation.

Pandora

The web radio leader said on Monday -- while cutting its full-year guidance and announcing a $150 million investment from P-E firm KKR -- that it's exploring "strategic alternatives." Soon afterwards, CNBC reported Pandora (P) is confident it can sell itself within 30 days, and that it can get out of the KKR deal for $15 million if it sells within that time frame. SiriusXM parent Liberty Media  (LMCA) reportedly made a $15 per share offer (more than 50% above current levels) last year, but in March called Pandora (then trading around $12) overvalued, and suggested $10 was a fairer price.

Working in Pandora's favor: It's now only worth $2.3 billion, it had 76.7 million active listeners as of March, its music algorithms and listener data have value and it has finally gotten a subscription streaming service (Pandora Premium) off the ground. Working against it: Both active listeners and listener hours are declining thanks to the rise of Spotify, Apple Music and other subscription offerings. In addition, Pandora is still losing money -- the 2017 EPS consensus is negative $0.52 -- and the guidance cut suggests Premium isn't doing as well as expected. Pandora might get sold -- if nothing else, chances are that Liberty still has interest -- but a large premium seems unlikely.

Yelp

Following Wednesday's big post-earnings plunge -- in addition to missing revenue estimates, Yelp cut its full-year sales guidance -- there has been speculation that Yelp (YELP)  could be targeted by activist investors that want the company put on the block. Back in 2015, Yelp reportedly hired Goldman to explore a sale, but called off the effort after a few months.

At a valuation of 2.7 times its consensus 2017 sales estimate, Yelp isn't that expensive. The company still claims an unmatched database of local business reviews and a highly engaged mobile audience and still appears to be seeing user growth in the 20% range. Historically, the company's biggest problem has been efficiently scaling a business that relies heavily on small ad deals with local businesses. It also might now be feeling some heat from Google and Facebook's efforts to grow their local ad sales.

But Yelp is still a unique and growing asset. A larger Internet or media firm that thinks it can run Yelp more efficiently (perhaps in part by merging sales forces) could come knocking. Jim Cramer suggested Internet mini-conglomerate InterActiveCorp (IAC) , which just struck a deal to buy Angie's List and merge the company with its HomeAdvisor unit, is a possibility.

Citrix Systems

In March, Bloomberg reported Citrix Systems (CTXS) is working with Goldman to find a P-E suitor or other buyer. It added interest "has been limited so far" due to Citrix's large market cap (now above $13 billion), which could require P-E firms to team up on a bid.

Citrix remains the top player in the PC/app virtualization software market (VMware is No. 2), and also has a meaningful networking and security hardware/software business. With shares still only going for 17 times a 2018 EPS consensus of $5.08, a deal seems plausible if a P-E suitor can foot the bill.

FireEye

The security hardware/software/services firm reportedly turned down multiple buyout offers last year that were below a desired price of $30 or more per share. If FireEye  (FEYE) has tempered its expectations some, a buyer could be drawn to the unique assets it has in fields such as malware-detection products, endpoint protection software and threat intelligence and incident-response services. Names mentioned in past speculation include IBM and Cisco.

A better-than-expected Q1 report could leave FireEye more confident about its ability strike an acceptable deal. Shares are up 21% since the report, but still trading below $15.

Nutanix

After getting clobbered in March due to weak guidance, Nutanix (NTNX) is barely trading above its $16 September IPO price, when it jumped 141% on its opening day. The company is still a top enterprise provider of "hyperconverged" systems that integrate server, storage and virtualization functions and can scale to thousands of nodes. But it seems to be facing tougher competition from Cisco and HP Enterprise -- the latter recently bought Nutanix rival SimpliVity for $650 million -- and perhaps also VMware's software offerings for enabling hyperconverged systems running on third-party hardware.

Cisco is still seen as a potential Nutanix suitor, owing to the latter's software strengths and large customer base. The networking giant reportedly bid $4 billion for Nutanix when it was private. Nutanix is now worth $2.3 billion, and trades for just 2.3 times its fiscal 2018 (ends in July 2018) revenue consensus. But its losses are still substantial.

Cypress Semiconductor

Cypress Semi's (CY)  core microcontroller market has been rapidly consolidating, with major players such as Atmel (acquired by Microchip) and Freescale (acquired by NXP, which is now getting bought by Qualcomm) having been snapped up. Cypress' strong automotive exposure could appeal to an industry peer, as could its growing IoT Wi-Fi/Bluetooth chip business. And with a current $4.4 billion valuation, a lot of companies could digest it.

Cypress M&A rumors have popped up from time to time since long-time CEO T.J. Rodgers stepped down in 2016. The company has a pretty reasonable valuation of 13 times a 2018 EPS consensus of $1.02, even after accounting for $1.2 billion in debt. But with the stock up strongly from its single-digit 2016 lows, Cypress might not feel a lot of pressure to sell.

Optical Component Firms

Speculation that a still-fragmented optical component market will further consolidate has been going strong for a couple of years. Stifel argued in December that Oclaro (OCLR)  would be a "very logical fit" for Finisar (FNSR) .

NeoPhotonics  (NPTN) has also been viewed a buyout target. So have Lumentum (LITE)  and Applied Optoelectronics (AAOI) , but their big rallies over the past 12 months could dissuade suitors (or perhaps motivate the companies to turn into buyers themselves). Finisar, NeoPhotonics and Oclaro have been stung recently by softening Chinese demand. Demand from cloud data center owners is still generally healthy.

Cramer and the AAP team have added to their holding of DXC Technology DXC ahead of earnings. Find out what they are telling their investment club; get a free trial subscription to Action Alerts PLUS.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | U.S. Equity

More from U.S. Equity

More Upside Potential Exists for This Market

Guy Ortmann
May 16, 2022 10:28 AM EDT

Let's take a close look at the charts and indicators.

A 'Mag'nificent Way to Play an AdTech Rebound

Bret Jensen
May 15, 2022 9:15 PM EDT

Similar to biotech, the small adtech space has been hammered in recent quarters and has likely hit oversold territory.

10 'Benjamin Graham Defensive' Stocks Make That Make the Grade

Jonathan Heller
May 13, 2022 12:00 PM EDT

This is the largest list of qualifiers since the pandemic began.

Here's Why the Potential for a Tradable Rally Has Increased

Guy Ortmann
May 13, 2022 9:42 AM EDT

The Nasdaq 1000 has now retraced 50% of its gains from the Covid low.

3 Dividend Aristocrats for Risk-Averse Investors

Bob Ciura
May 12, 2022 2:38 PM EDT

We like these high-quality stocks for their dividend safety, above-market yields, and dividend longevity.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • 12:20 PM EDT PAUL PRICE

    A Blast From the Past Regarding Bitcoin

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login