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Some analysts think it will be a long time before Pandora turns a profit, if ever

Pandora is an internet radio company that has been around for more than ten years. The company has not been publicly traded until recently when Pandora had its IPO. Early on shares in the company soared as high as 48% from the IPO price.

The problem was that the stock then turned around in late trading and prices tumbled, yet it still ended up above its opening price. That means that people who bought early are still doing well enough on the stock, but those that bought later in the day are facing a loss in a single days trading. The reason for the about face on the stock has to do with concerns of whether or not Pandora will even be profitable.

The problem is that Pandora is growing its user base very quickly and the ads sold to support the network aren’t growing nearly as fast. This raises concerns of whether or not Pandora will be able to turn a profit in the future. 

Pandora listeners are also migrating more and more from listening via their computer to listening on a mobile device and mobile ads are worth even less than ads on computers. Pandora CEO Joseph Kennedy said, "We are tremendously focused on providing a great listener experience and that's what has gotten us to this point."

The stock's IPO price was $16 per share and it closed the day at $17.42 per share. Some analysts are calling for investors to avoid Pandora stock for now. Analyst Rick Summer from Morningstar has a target price on the stock at $6 per share. The WSJ reports that Pandora CFO Steve Cakebread thinks that its margins will improve as listener hours slow down. 

Cakebread said, "[We should] improve operating margins as our listener hours slow down." The WSJ also lists the value of Pandora at $3.1 billion fully diluted and notes that a limited float of 95 is driving shares up higher than the first day of trading.

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RE: The problem with Pandora is simple...
By omnicronx on 6/16/2011 4:19:04 PM , Rating: 2
Once you IPO, you are _expected_ to earn money for your owners (now the public).
I disagree, you are very lucky if you find an IPO that gives you an immidiate or even close term return because they are usually being valued on market potential, not their current state. Many IPO's never turn profitable, and even most that do take years to do so.. Not everyone is Google..

Pandora made a whopping 138M in revenues but were actually 1.8M in the red last year. Do you really think anyone can expect instant returns when the IPO is being valued at 2.6B?

Not to mention most IPO's form when companies are seeking to expand and/or need capital in order to do so..

This is clearly a long term investment, and anyone getting involved without realizing this is a fool..

By MrBlastman on 6/16/2011 4:45:15 PM , Rating: 3
This is clearly a long term investment, and anyone getting involved without realizing this is a fool..

Long-term... Lets see. Long term implies they will survive long enough to give a return on capital. That means they have to stay in business.

Anyone who makes an "investment" on a company that cannot make any money and has stated their goal is not to focus on making money anytime soon is a fool.

Anyone who places a "bet" on a company that does this--well, they're taking a gamble then. Pulling the lever to see what they get. If they go in with this mentality, then they aren't a fool.

When you make an investment, you put your money in something that will make you a return--at a value, typically a discount to what it is worth. Pandora did not IPO at a discount. It was sold at an extreme premium. A HUGE premium. It has a market cap today of 2.8 billion, that is _still_ 20 times revenues. TWENTY TIMES. Most borderline insane individuals might buy into something that is selling at eight times. It sold on the primary at TWENTY FOUR times. On the secondary at open, it was THIRTY times.

It sold on the primary for 16/share, opened on the secondary at 20, went as high as 26 and now, as of today, closed at 13.26. There are plenty of people that are looking at it the same way I am.

If you invest, you invest in value and a discount. Pandora is extremely overpriced. I want them to make money, I really do, I just think their CEO is going to need to change his attitude if he wants to keep from being ousted by his new public that owns his company.

"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki
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