Pandora prices shares at $16, raises $235M

Faith Merino · June 14, 2011 · Short URL:

Pandora's IPO kicked off Tuesday night at $16 a share, nearly double the initial price of $7 to $9

Pandora started trading publicly Tuesday night, raising $234.9 million after pricing shares at $16 a share—nearly double the original share price put forward just two weeks ago. After opening at $10 to $12, the company sold 14.7 million shares at $16 each, and the shares will hit the New York Stock Exchange Wednesday morning under the ticker symbol “P.”

The company’s share prices have been a source of controversy since it raised the price from a maximum of $9 per share to a maximum of $12 per share, leading some to question whether Pandora is truly worth $12 a share. Earlier this month, BTIG Research released a report warning investors not to buy Pandora stock at such a high price, arguing that the company’s lack of profitability and it’s uncertain future make it a shaky investment.

Specifically, BTIG noted the fact while that Pandora is relying heavily on mobile to acquire most of its new users (60% of all Pandora listening time occurs on a mobile device), its CPM is lower for mobile than it is for PCs. Users are less likely to click on advertisements from their mobile device, which means Pandora is actually making less money via mobile than it does via PCs. While Pandora hasn’t given exact numbers, BTIG estimates a $43 CPM in 2011 compared to a $20 CPM for mobile.

Some observers have also expressed concern over the fact that Pandora has yet to turn a profit, despite being in business since 2005, when Savage Beast officially became Pandora. Otherwise, the company has been losing money since 2000, when Tim Westergren founded Savage Beast as a music recommendation service for big box retailers and other large companies.

And now there’s the threat posed by other rising stars in the digital music world, such as Spotify, not to mention the efforts of major players in the tech world, like Apple and Amazon, which are working on digital music offerings of their own.

Nevertheless, Pandora maintains a pretty sizable chunk of the market, claiming 60% of all online music listeners, so the company has the advantage of an established user base.

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Pandora, the leading internet radio service, gives people music they love
anytime, anywhere, through a wide variety of connected devices: laptop and
desktop computers, smartphones, connected BluRay players, connected TVs,
etc. Personalized stations launch instantly with the input of a single “seed” –
a favorite artist, song or genre. The Music Genome Project®, a deeply
detailed, hand-built musical taxonomy, powers the personalization or
Pandora. Using this musicological “DNA” and constant listener feedback
Pandora crafts personalized stations from the more than 800,000 songs that
have been analyzed since the project began in January 2000.
More than 75 million people throughout the United States listen to
personalized radio stations for free on Pandora through their PCs, mobile
phones and devices such as the iPad, and connected in-house devices
ranging from TVs to set-top boxes to Blu-Ray players. Mobile technology has
been a significant factor in the growth and popularity of Pandora, starting
with the introduction of the Apple app store for the iPhone in the summer of
2008. Pandora instantly became one of the most top downloaded apps and
today, according to Nielsen, is one of the top five most popular apps across
all smartphone platforms.

Pandora is free, simple and, thanks to connectivity, available everywhere
consumers are – at the office, at home, in the car and all points in between.
In 2009 the Company announced that Pandora would be incorporated into
the dashboard in Ford cars via SYNC technology; GM has already followed in
announcing plans to integrate Pandora into its vehicles and Mercedes-Benz
introduced their Media Interface Plus device that works with the
free Pandora iPhone app to provide direct control of Pandora from in-dash
stereo controls. This was all great news for the millions of Pandora listeners
who had been plugging their smartphones into car dashboards to listen to
personalized stations while driving. More than 50 percent of radio listening
happens in the car, making it a crucial arena for Pandora.

Today tens of millions of people have a deeply personal connection with
Pandora based on the delight of personalized radio listening and discovery.
These highly engaged listeners reinforce the value Pandora provides to: 1)
musicians, who have found in Pandora a level playing field on which their
music has a greater chance of being played than ever before; 2) advertisers,
who benefit from the multi-platform reach of Pandora, as well as its best
practices in targeting consumers for specific campaigns; 3) the music
industry, which has found in Pandora a highly effective distribution channel;
and 4) automobile and consumer electronics device manufacturers, who have
noted that incorporating Pandora into their product makes it more valuable
to consumers.

Pandora continues to focus on its business in the United States. The radio
arena has never been hotter, thanks to technology that enables radio to be
personalized to the individual and more accessible than ever before. Right
now millions of people listen to Pandora in the United States and we hope
someday to bring Pandora to billions of people around the world.

• 2000 – Tim Westergren’s Music Genome Project begins.
• 2005 – Pandora launches on the web.
• 2008 – Pandora app becomes one of the most consistently downloaded
apps in the Apple store.
• 2009 – Ford announces Pandora will be incorporated into car
dashboard. Alpine and Pioneer begin selling aftermarket radios that
connect to consumers’ iPhones and puts the control and command of
Pandora into the car dashboard.
• 2010 – Pandora is present on more than 200 connected consumer
electronics devices ranging from smartphones to TVs to set-top boxes
to Blu-ray players and is able to stream visual, audio, and interactive
advertising to computers, smartphones, iPads, and in-home connected