Pandora founder Tim Westergren sounded almost adolescent about the debut of his internet radio company on the New York Stock Exchange. He blogged, “It’s really something to see people actually start to buy stock in your company. Pretty cool!”
The stock began trading on June 15th at $20 a share, well above its initial public offering of $16. Share price went as high as $26 then began tanking as investors became wary of a company with no working strategy for turning its losses into profits. Yesterday, the stock traded around $15 a share for most of the morning and closed below $13.50.
Pandora, a name that evokes Greek mythology, tells a real-life cautionary tale about the potential pitfalls of IPOs. Some of the company’s biggest fans, Pandora users, blogged in chorus on the unfolding drama. In response to Westergren’s ebullient opening day blog, a Pandora user named John wrote, “First of all, congratulations. I’ve been using Pandora for a couple of years, now, and I’m really happy for you that you can now get public investors. One thing that worries me though, is the much-needed monetization of your users. There’s only so much advertising people will put up with and I know what you already do doesn’t cover the costs.”
John goes on to say Westergren should create a way for dedicated Pandora listeners to donate money to help keep the Music Genome Project running.
One listener, Jay B., talked his dad into buying a few shares. He blogged, “My biggest worry is that Pandora does not generate enough profit to keep their stock prices up.” Jay B. recommends raising Pandora’s annual subscriber rate to $49.95 a year (from $36), and suggests cutting the amount of free music provided, as well as charging for the mobile phone app. “You have too many users to not be hitting them up.”
The first buyers of Pandora shares may be hoping Westergren listens to John and Jay, or figures out another way to begin showing a profit on the music streaming service used by tens of millions of people. As Motley Fool columnist Anders Bylun points out, “If you were first in line to buy shares on Wednesday (June 15th) you’ve lost 44 percent of your investment already.”
Pandora is just the latest IPO to fizzle as initial enthusiasm loses ground to an ultimately pragmatic market. Even investors who love the product – and there are millions of them – have a hard time ignoring problems with the company’s business model. The tale of Pandora adds to the folk wisdom that “mere mortal” investors are better off sitting on the sidelines as the financial titans determine an IPOs ultimate fate on Wall Street.