Everything You Need to Know About Pandora’s IPO

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Pandora filed for their initial public offering yesterday, set initially at $16 per share. Upon opening today, its value climbed briefly up to $25, and has since leveled off to around $23.

Although the internet-radio company is expecting $250 million in revenue this year, it’s still operating at a loss — as we’ve covered before.

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Overall, the company is estimated to be worth $3.2 billion.

However, most watchers are cautious, citing that the nature of Pandora’s advertising model doesn’t bode well for a profitable future. But there are some signs for optimism.

Here, we parsed out some of the more important dialogue, which covers the essentials:

Rolfe Winkler of the Wall Street Journal, on why investors should pass on Pandora:

“Pandora’s problem isn’t finding new users. Its technology, which customizes radio stations for listeners based on music they like, had attracted 34 million active users as of April… That didn’t stop losses from widening, betraying a lack of operating leverage. As the number of hours that users listen grows quickly, so too do the royalties Pandora must pay to stream music. With advertising generating 90% of sales, the tricky part is selling radio spots fast enough to keep up with costs. And royalty fees are scheduled to rise each year through 2015.”

Peter Kafka of All Things D covers both sides of the coin, highlighting a few of Pandora’s endemic problems and why an IPO could help solve them:

“There are lots of ads, but most of them won’t be obvious to most users, because they’re visual, not audio, and you don’t spend much time looking at your Pandora app when it’s running.”


“Then again, all of this is easy to flip around: Pandora’s ads are crude and clumsy because Pandora is just starting to become a Web media business — up until recently, it was a technology company that didn’t spend much time figuring out how to generate revenue… Meanwhile revenue is growing very fast — up 131 percent in the last quarter. Think about what could happen when Pandora learns how to make its ads more sophisticated and targeted.”

Lee Spears of Bloomberg argues that Pandora will be facing stiff competition from not only satellite radio, but also the looming tech giants as they move their music businesses to the cloud:

“At the offering price, the company has a market value of about $2.6 billion, or about 19 times last year’s sales, compared with about 2.7 times for Sirius XM Radio Inc. (SIRI), the subscription-based satellite-radio service. Sirius XM has a market value of about $7.7 billion.

While Pandora will compete with peers such as Sirius, it may face a bigger risk staying ahead of established technology companies including Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Google Inc. (GOOG) that are investing in their own online music offerings.”

Jay Greene of CNET says that Pandora investors have reason to be optimistic, citing Groupon’s IPO from earlier this year:

“Plenty of money-losing companies with potential go public. Earlier this month, the daily-deals service Groupon filed to sell stock, despite losing $146.5 million in the quarter that ended March 31 and some $456.3 million in 2010.”

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