Pandora shares jump in IPO debut

The stock was priced at $16 and has soared as high as $26. What are investors seeing here?

By Kim Peterson Jun 15, 2011 11:31AM
Updated 4:30 p.m. ET

Online music service Pandora Media (P) saw a nice jump in its initial public offering Wednesday. The company raised about $235 million, pricing shares at $16 each.

The stock opened at $20 surged to $26, but ended up closing the day at $17.42. At the $20 opening, the company was valued at more than $3 billion. Fairly outrageous, since Pandora has never made a profit, gets revenue mostly from advertising and faces enormous competition.

Check out this video discussion about Pandora's pros and cons and why the company can't achieve economies of scale.

Post continues below:
Still, the investor response was fairly predictable, given what we've seen with tech IPOs this year. LinkedIn (LNKD), Yandex (YNDX) and other companies saw enormous jumps in first-day trading. And those with small offerings -- Pandora sold only 9.2% of its total shares -- can see even more demand.
"There's pent-up demand for high-growth, exciting business models," one asset manager told Bloomberg. "There's demand, and there just aren't many ways to get access to it."

But Rolfe Winkler argues in The Wall Street Journal that investors shouldn't chase Pandora. The company is paying more royalties to stream music, and it depends on advertising for 90% of its sales. Only about 1% of Pandora's listener hours are for advertising, compared with 20% for traditional radio, he adds.

And though Pandora is landing some key partnerships -- Ford (F) will add the service to some of its vehicles -- "meaningful profits could be years off," Winkler adds.

12Comments
Jun 15, 2011 12:41PM
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"bubble-bubble, toil and trouble"


Amen. I have given up hope that Wall Street will ever learn anything.

Jun 15, 2011 2:42PM
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nothing new. people buy on the IPO hype then sell it for a quick buck. They could care less about financials and what the company plans to do because they wont be around for it to matter.
Jun 15, 2011 2:43PM
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Does anyone remember the tech bust of the 90s?  You are seeing it all over again.  None of these companies will ever produce what they claim they are worth, and the mid to low investors that think they will make some kind of profit will be in for an expected surprise, good luck.
Jun 15, 2011 3:36PM
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Ummm, Google was once an "ad only revenue" model too, and we can see how that turned out.  Granted, Pandora won't be a "Google".  But if they can be the "Google" of internet streaming radio, and make themselves a household name with good partnerships, they will make money.... and yes they can do it without paying subscribers.
Jun 15, 2011 1:55PM
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Don’t despair all you Pandora investors who just bought at $26. There’s always going to be another IPO waiting for you around the corner. I’m going to be creating a new dot com trading website around my used car dealership next week. Goldman tells me they can take us public with a $2 billion cap if I let them manage the offering and take a $billion in trading profits for themselves in the process.  

Jun 15, 2011 4:52PM
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What a biased article!  Am I in the opinion section accidentally?
Jun 15, 2011 4:42PM
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"What are "investors" seeing here?" LMAO.

The primaries offload this crap to the chumps.....AGAIN!

Old adage from the Blue Ridge Mountains....................

"The 2nd time you're kicked by a mule..you don't learn anything."

Jun 15, 2011 5:16PM
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This article has faulty information and must have been written by someone who doesn't use Pandora. Pandora has higher one which is its regular radio with more features. Some of the features are higher quality audio and others. This costs thirty six dollars yearly. Please do your research. Please tell me if I'm wrong. Thank you

Jun 15, 2011 4:59PM
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@FSU Seminole

 

That POS edumacation you got really worked out well. The IPO lost money on the day!!! It's a bubble like Groupon, LinkedIn, etc.  They are all pump and dumps, even Ray Charles or Stevie Wonder could see that! I laugh when people say silver and gold are bubbles but these POS IPO's are not. Good thing I'm not a sheep like the rest of the USA. Prepare to get fleeced folks!

Jun 15, 2011 1:56PM
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Human nature has natural emotions and two of them are "fear and greed."  Right now, Pandora, an innovative online service no doubt and probably the best of breed which of course may command a higher valuation...but one thing for certain, at some point they better earn that high valuation as we know what can happen when hype in a company is all that there is.....PLOP.  And I doubt institutions were the buyers of this company in the $20's today...as too few small investors if any at all were the owners at $16.  From the look of the today's price ranges, looks like the train took off, ran out of steam....aka...the epitome of a day trade as an IPO....Some are partying like it's 1999...and no doubt, it's NOT Mr. Joe E-Trader.  But the good news is look at the commission that baby is saving....
Jun 16, 2011 9:10AM
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@swilli1020: FB makes money buy selling a ton of ads, and with over 600 million members you can bet somebody is buying.

 

These numbers are nothing compared the to the value of the demographic information that is FREELY given by it's members that can be, and you can bet is, sold by FB to marketing and advertising companies.

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