Pandora Fizzles After Hot IPO Debut
By Olivia Oran 06/16/11 - 01:20 PM EDT
Shares of the unprofitable online radio company were trading at below their set offer price of $16, despite hitting a high of $26 on Wednesday.
Pandora's performance contrasts with other recent Internet IPOs.
LinkedIn(LNKD) saw shares more than double on its first day of trading, and Yandex(YNDX) -- the so-called Google(GOOG) of Russia -- jumped more than 40% in its U.S. trading debut just several days later.
While shares of both companies have cooled since then, they are still trading significantly above their offer prices.
Pandora's IPO is a reality check for tech investors following months of speculation that we've entered into a new bubble. This concern has heightened as some of Internet's biggest names like Facebook and Groupon prepare near term initial public offerings.
Pandora's IPO, however, proves that only companies with sound financials will stand up in the public markets, said John Fitzgibbon, president of IPO Scoop.
"It's a classic case of sizzle versus steak," he said. "The sizzle came yesterday in the form of insanity.com but the focus has shifted to the company itself -- the steak."
Pandora, which posted a net loss of $1.8 million last year, bears point to the company's lack of profitability and stiff competition from tech powerhouses that are also breaking into the online music space.
Pandora faces a new initiative from Apple(AAPL), which last week unveiled its iCloud service that will let users stream their music across multiple devices, rather than having to synchronize gadgets.
Amazon(AMZN) also introduced its Cloud Drive service, an Internet service that lets customers store music and play it on their smartphones or computers.
Another significant problem facing Pandora: the sustainability of its business as its popularity grows.
The company will be forced to increased pay royalty fees to music labels as its user base expands. And as more listeners gravitate to Pandora's mobile app, the company will need to further utilize audio ads which aren't as lucrative as display ads, said Tom Taulli, an independent IPO analyst.
Pandora raised $235 million in its IPO Tuesday, selling shares at $16 a piece. It was valued at $2.8 billion based on its closing price Wednesday.
--Written by Olivia Oran in New York.
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