Pandora's shares surged by the maximum amount sixty three p.c within their market debut before pulling back later in the session. The stock closed at $17.42, still an honest gain amid the market's broader decline. It marked a nine p.c increase from Pandora's initial public giving worth of $16 and an almost six-fold increase from what Pandora's own board thought the stock was value simply six months ago.
The performance shows the recent market slump hasn't dampened the passion investors have for brand new stock offerings from rapidly growing net services.
The excitement began to make when shares of skilled networking website LinkedIn Corp. quite doubled on their initial day of trading last month. currently it's just like the fervor might escalate into an outright mania as even larger net firms like on-line coupon seller Groupon Inc., net game maker Zynga and also the biggest star of all, Facebook, go public throughout ensuing year or therefore.
"Everyone appears to be obtaining gold-rush fever," said analyst Phil Leigh of within Digital Media. "People are getting down to believe they will realize gold in each stream or around each hill, however that is not the fact."
Pandora CEO Joseph Kennedy said he will not enable his 360-employee company to induce fixed within the hysteria. "I am not jumping up and down at once," Kennedy said during a Wednesday interview. "I simply see this as another step toward building a good company."
Kennedy, 51, owns 4.2 million Pandora shares, a stake currently value concerning $74 million.
The warm Wall Street reception for Pandora pegged the company's market price at $2.8 billion. that is already quite the $2 billion market price of AOL Inc., a web pioneer hailed as a next nice media powerhouse at the peak of the dot-com boom eleven years ago.
Around the same time, Pandora was simply beginning out as a music recommendation company then called Savage Beast Technologies.
Pandora adopted its current name in 2005 when it morphed into a replacement form of radio station that streams music over the net. What makes Pandora completely different from broadcast radio is that it will use pc formulas to find out every of its individual listeners' tastes so as to form customized song lists.
The concept has been successful with music lovers, serving to Pandora build an audience of ninety four million registered users who principally hear the service on home and workplace pc and mobile phones. the corporate, based mostly in Oakland, Calif., is currently hanging deals to supplant ancient radio stations in cars, simply as satellite service Sirius XM Radio Inc. already has done.
Unlike the subscription-driven Sirius, Pandora gets concerning eighty five p.c of its revenue from advertising. the remainder of its revenue comes from subscribers who pay $36 annually to listen to higher-quality sound while not industrial interruptions.
Pandora's biggest downside up to now has been that its revenue isn't growing quick enough to hide the royalties that it pays to play music. Those rates go up as Pandora attracts a lot of listeners.
Pandora has suffered an uninterrupted string of losses totaling $92 million in its short lifetime, together with a $6.8 million loss throughout the primary 3 months of its current fiscal year before accounting for dividends on most popular stock.
"Unless they will still increase their subscribers or provide new material, clearly their losses can still grow," predicted Scott Sweet, managing partner of IPOboutique.com.
But Pandora's revenue is rising rapidly, quite doubling in its fiscal initial quarter to $51 million. If it will maintain that growth pace, Pandora's revenue for the fiscal year ending next January would be concerning $325 million.
That means Pandora's market price stands at eight.5 times its projected revenue. By comparison, Sirius' market price of $7.7 billion is concerning two.5 times its anticipated revenue for this year.
Pandora is also facing potential competitive threats from a number of technology's most powerful firms. Apple Inc., Google Inc., and Amazon.com Inc. all are giving to store people's personal music collections on remote computers that the songs may be played on any device with a web affiliation. It would not be a surprise if any of these 3 firms expanded their music offerings to incorporate a music recommendation service just like Pandora's, said analyst Martin Pyykkonen of Wedge Partners.
"There is not a giant barrier to entry during this market," Pyykkonen said.
Similar worries dogged Netflix Inc.'s video subscription service when the corporate went public in 2002. several analysts thought Netflix would eventually be crushed by video rental store chain Blockbuster Inc. or another larger company like Amazon.com or Wal-Mart Stores Inc., that once ran a competing DVD-by-mail service.
Blockbuster went bankrupt, Wal-Mart retreated from DVD-by-mail services and Amazon still hasn't return up with how to counter Netflix. Anyone who bought $10,000 value of Netflix's stock at its IPO worth and stayed to it'd have a paper gain of concerning $330,000 so far.
The skepticism concerning Pandora's prospects could also be one reason the company's shares did not soar as high as LinkedIn's did. LinkedIn stock quite doubled from its IPO worth in its initial day of trading on could nineteen to shut at $94.25. The shares have since fallen quite twenty p.c, closing Wednesday at $74.62. that is still well on top of the $45 IPO worth.
There's another doable reason Pandora's shares did not rise as much: the company's investment bankers were a lot of aggressive concerning raising the IPO worth. 2 weeks ago, the IPO worth had been set at $7 to $9 per share before sturdy demand drove it up. when expenses, Pandora expects to induce $85.5 million from selling half-dozen million shares within the IPO. Company insiders told a combined eight.7 million shares to money out $139 million for themselves.
The current price of Pandora's stock appearance even a lot of spectacular, given the company's board appraised the shares price at $3.14 in early December last year, in line with documents filed with the Securities and Exchange Commission.
Pandora's IPO conjointly came during a rockier stock market than LinkedIn's did.
A rash of ugly reports on the economy has helped push stock indexes down for 6 straight weeks, its worst stretch since 2008. Since LinkedIn completed its IPO, the tech-driven Nasdaq composite index has fallen quite half-dozen p.c.
Internet IPOs, though, might still look enticing to investors desperately longing for bright spots amid the gloom.
"Companies like Pandora are growing despite the slow-growing economy," said Kathleen Smith, a principal at Renaissance Capital, an IPO investment adviser. "That's why investors have turned to them."
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