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Posted on 17 June 2011 | 34,779 views

Pandora Shares Plunge Below IPO Price as Stock Crashes

Shares of online radio firm Pandora Media Inc. plummeted on their second day of trading as the Pandora IPO date departed and investors suddenly fled for the exits. BTIG analyst Richard Greenfield this afternoon launched coverage of Pandora Media with a Sell rating and a $5.50 price target.

The Oakland, California-based online music streaming company, which listed on the NYSE under the Pandora ticker symbol “P,” sold 14.7 million shares — Pandora Radio offers Pandora Apps for smart phones, Apple iPod touch, Apple iPad and many other internet ready devices.

The Pandora stock price dived $4.16 per share, or down 24%, to close at $13.26 — 17% below the initial public offering price of $16.00 per share.

As Pandora goes public, the stock soared as high as $26.00 per share on its first trading day where most retail investors purchased the stock at, mirroring the debuts of other new Internet issues. Investors’ hunger for the current crop of Internet stocks has echoed the late 1990s “Dot Com Boom” and “Dot Com Bubble” — although the market today seems far less frothy than the worst excesses of the dot-com era.

The Pandora IPO 2011, comes amid a sizzling market for the latest generation of Internet companies. These include daily deals site Groupon Inc., which has filed to go public and LinkedIn Corp. (Ticker Symbol: LNKD), which has already completed its IPO.

Pandora Music (Stock Symbol: P) had an initial pricing between $7.00 to $9.00 and it now appears the stock is heading to that range now.

The Fall and Rise of Satellite Radio — Sirius XM (Ticker Symbol: SIRI) has come a long way since its stock bottomed out at $0.05 a little more than two years ago. The cash-strapped company was facing debt milestones and content provider payments it couldn’t afford, and CEO Mel Karmazin warned of a possible bankruptcy filing. Don’t expect Pandora Online Music earnings to justify the valuation it’s going public with — risks related to Pandora are pretty much all very real.

* Pandora is increasingly mobile, which is great for usage, not so great for ad rates. CPMs (cost per thousand impressions, the most common way to price ads) are much lower on mobile than on PC. Mobile is great to grow Pandora’s userbase, but it means it will make less money from each marginal user.

* It’s unlikely Pandora will be able to make a bunch of money on ads anyway. The opportunity for Pandora is to grab a pie of the $13 billion radio advertising market. But, says BTIG, that’s unlikely. First of all, while Pandora now carries fewer ads per hour than traditional radio, its userbase will probably rebel (and competitors lure them) if they increase that too much. More importantly, most radio ads are local ads, and Pandora would need a huge local sales force to grab a share of that pie, and it doesn’t have that. And, “Terrestrial radio broadcasters also have the ability to leverage local personalities who have a relationship with their audience and who can create more of an event out of local ads (give-aways, studio events, broadcasting from an event, etc…).”

* Of course, content costs are eating Pandora alive. 50% of Pandora’s revenue goes right back out the doors to public labels. That’s not a way to build a healthy business. It’s interesting, however, that BTIG cited this last. This is the problem that’s talked about the most when discussing Pandora, but the other factors seem just as bad.

When Pandora is going public, that just doesn’t justify taking the risk.

Pandora Homepage: Pandora Online Music
Pandora Widgets: Pandora Mobile

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