Pandora Media, the largest Internet radio service, has held discussions about selling the company, according to people briefed on the talks.
Pandora is working with Morgan Stanley to meet with potential buyers, said the people, who spoke on condition of anonymity because they were discussing private matters. The talks are preliminary and may not lead to a deal, the people said.
For Pandora, it would be a curious time to sell. Its shares are yielding a market value of $1.8 billion, down from more than $7 billion two years ago. The stock has fallen more than 60 percent since October.
Pandora has the largest number of users for music streaming, but the competition is encroaching. Spotify is said to be arming itself with another $500 million in capital, and Apple Music recently surpassed 10 million paying users. Pandora’s users peaked at 81.5 million at the end of 2014, declining to 78.1 million in the third quarter.
The company is spending heavily to attract more users, and its ability to make money from those users may be waning. In the third quarter, Pandora lowered its full-year financial guidance, expecting its adjusted earnings to be $51 million to $56 million, down from the $75 million to $85 million it projected in the quarter before.
Pandora is set to announce fourth-quarter and full-year earnings after the close of the market on Thursday. Analysts surveyed by Standard & Poor’s Capital IQ are expecting Pandora to post $1.2 billion in revenue for the year, an increase of 27 percent from 2014, the company’s slowest annual growth ever.
A panel of federal judges increased the royalty rate that companies like Pandora have to pay record companies. Internet radio services now have to pay 17 cents for every 100 times they play a song for listeners who do not pay for subscriptions, up from 14 cents.
Investors were happy with this news, as many had expected the rate to be increased to 25 cents for every 100 plays, the level that the music industry requested.
Representatives from Pandora and Morgan Stanley declined to comment. Brian P. McAndrews, Pandora’s chief executive, is a director at The New York Times Company.
Pandora was introduced in 2005 and uses its own “music genome” technology to analyze its customers’ musical tastes and feed them a radiolike stream tailored to what they like. The company generates 80 percent of its revenue from advertising, allowing listeners to stream music free, with ads after every few songs. Pandora also has about 3.9 million customers who pay $5 a month to remove the ads.
Last year, Pandora announced deals to pay $450 million for Ticketfly, an online ticketing company, and $75 million for the assets of Rdio, a struggling competitor.
Executives at Pandora, whose service is available only in the United States, Australia and New Zealand, have said that they want to expand around the world and turn Pandora into a more robust service that can compete with so-called on-demand outlets like Spotify, Rhapsody and Apple Music, which let users choose exactly what songs to listen to.