Pandora's Music Box Wound Up for Wall Street Debut
Pandora is ready to jump into its first day of trading as a public company this Wednesday, but there's a certain amount of breath holding over the move. The bottom line is that Pandora will have to really redefine how music is purchased and consumed -- an ambitious undertaking at best, said Balentine analyst Joe Stallings, but "having said that, the same was said of Netflix, and Netflix was able to do just that."
06/13/11 10:52 AM PT
Pandora, an Internet music service, is scheduled to begin trading shares in an initial public offering on Wednesday on the New York Stock Exchange under the symbol "P."
Last week, the company ramped up its plans, increasing its IPO price range by at least a third and boosting the number of shares to be sold by as many as a million.
It raised the price range to US$10 to $12, up from the initial $7 to $9. It is now offering up to 14.7 million shares, up from 13.7 million.
There is a reason for Pandora's optimism: Its mobile app is among the most-used across all smartphone platforms. Apple has said it is the most frequently downloaded free iPad app.
Whether that popularity justifies the company's IPO optimism is very much an open question.
Pandora declined the E-Commerce Times' request to comment for this story, citing SEC regulations.
Another Tech Bubble?
Another day, another tech IPO. So the story has been going, with the only variable being how it is received.
Groupon's long-awaited prospectus for its IPO, for example, has fallen under some harsh scrutiny, with some investment advisors warning clients away.
On the other hand there is, LinkedIn, which went public with shares priced at $45, but then quickly soared to $100. Weeks later, it is trading in the $70 per share range.
So, which route will Pandora take?
"The company is certainly no fly-by-night newcomer, having spent over a decade honing their brand and their technology, the amazing Music Genome Project, which is still without peer," observed Joe Stallings, communications director for Balentine.
"Additionally, having viable brand loyalty cannot be dismissed. Pandora reportedly claims over half of the Internet radio market, with enthusiasts willing to preach the gospel about Pandora and its many fantastic features and qualities," he told the E-Commerce Times.
This type of consumer enthusiam reminds Stallings of Netflix's vocal customer base.
Also, Pandora has a "secret sauce" with its Music Genome Project technology, something that most of the other recent technology IPO's can't really lay claim to, he noted.
"Amazon.com and Netflix both have very strong 'you might also be interested in...' algorithms, but Pandora goes a step further by not only aggregating user data and genres, but also codifying songs' musical structure," explained Stallings.
That said, any company whose primary goal is to monetize media content, and music in particular, faces an uphill struggle in the months and years ahead, he acknowledged.
For starters, many artists are simply giving their music away for free and instead are looking for other revenue sources, such as ancillary merchandise or live performances. Also, piracy continues to be commonplace, and "open" distribution platforms like SoundCloud are a growing source of not only sharing music but also collaborating, Stallings pointed out.
"And finally, any company that is in the content distribution business faces some heavy hitters such as Apple, Amazon and the major publishing labels," he said. The bottom line is that Pandora will have to really redefine how music is purchased and consumed -- an ambitious undertaking at best, concluded Stallings, but "having said that, the same was said of Netflix, and Netflix was able to do just that."
$10 to $12 Per Share
The question of whether investors will jump on Pandora's bandwagon at its increased cost is wide open.
If they do, chances are it will be because of some solid number crunching and not the sort of feel- good factors that drove the last tech bubble. That investors are inclined toward a harder-nosed attitude this time around is clear from the analysis of Groupon.
"All IPOs, whether tech or otherwise, will eventually and ultimately be subject to the laws of valuation -- based on cash flow and earnings -- as publicly traded companies," Timothy J. Keating, CEO of Keating Capital, told the E-Commerce Times.
"Certain management teams may rely on non-GAAP metrics as gimmicks to portray their companies as favorably as possible in the short term to goose their IPOs," he said, "but in the long term, these same publicly traded companies will be valued based on their ability to generate real earnings -- of the cash variety -- for stockholders."