Pandora IPO is Steady Eddy
Whether we are in the midst of another dot.com bubble or stirring the froth, IPO’s continue to emerge and today Pandora took center stage. Priced modestly at $16, and opening with $20, climbing steadily in morning trading at the NYSE. Currently at $23, Pandora whose value approximately $3.7 billion has again set naysayers on their ear by early and swift trading.
Pandora is a music/radio company that creates custom music stations or channels for the listener, he or she picks a song or artist, the player searches, and builds a station with that artist’s music and others in the same genre. The listener can build up to 100 unique stations and listen to 40 hours of music for free; unlimited listening is $36 per year.
Pandora pays approximately 49% of its revenues to record labels for streaming music; as users spend more time listening, the costs soar. John Shinal in an article for Market Watch, Pandora’s Box of Rising Music Costs, talks about the struggle Pandora has had with the royalty rate soaring to triple the cost , and the almost extinction of Pandora in 2007. Thanks some aggressive lobbying a new royalty agreement, Webcaster Act of 2008 and 2009, was the rescue for all internet broadcasters allowing them time to work out new payments to labels.
Pandora receives the largest percentage of revenue from internet advertising, the lions share is used to pay the royalty costs for streaming music, unlike traditional radio stations when a listener requests a song at Pandora, the company pays audio performance rights for every time the music is played.
Continued on the next page
Several market watchers have offered advice to buyers regarding social network companies like LinkedIn, Pandora and others who have great business plans and strong business models but are not profitable. The wave of optimism that has taken hold of the market for the internet IPOs is strongly reminiscent of the dot.com era, and as Ira Cohen , managing director at Signal Hill, says “What is interesting to me about Pandora is that it illustrates the broader trend of this year’s tech I.P.O. market. The I.P.O. market is a place of the haves and have-nots.”