"I got the magic stick
I know if I can hit once, I can hit twice."
-50 Cent ft. Lil Kim
Thankfully, we didn't have a LinkedIn type moment with Pandora today. But we did see a 63% increase in the stock price under the NYSE ticker P. After raising the offering price to $16 a share yesterday, Pandora started selling just above $20 this morning and at some point reaching as high as $26. It's currently at $18. LinkedIn's price more than doubled opening day as evidence that social media stocks are in high demand. Pandora only sold roughly 9% of its shares outstanding as a sign that it wants to hold the stock in the long-run. Bloomberg reported that the average float is 24% for US technology IPOs in the past year.
What VC moguls got paid off in yet another successful IPO? Namely it will be publicly traded Hearst Corp. who will sell 4.4 million shares in the IPO but the big dog investors of Pandora will not be selling their shares: Crosslink Capital, Walden Venture Capital, and Greylock Partners. As mentioned in my blog entry a couple days ago, Pandora is not profitable and will not be until at least 2012. The more music we listen to, the more money they have to pay record label companies. 87% of Pandora's revenues come from the advertising and the rest comes from subscription based services, but their advertising is showing nowhere near the success that Facebook is currently having. High octane startups are working together and trying to benefit off each other based on the LivingSocial and Groupon ads you may find when playing Mafia Wars (Zynga) or when streaming music on Pandora.
Pandora's current valuation at $3 billion means the company is selling at 20x sales, that's insane. Remember that Sirius XM is trading at 2.7x sales, with a market cap at $7.7 billion. Only Sirius XM is making lots of money off subscriptions, Pandora is not. They have to make money somehow to pay Howard Stern for his own radio show, right? Pandora isn't even a radio business, it's a customized music service who's competition is growing by the week. I personally like Grooveshark and now there's the I-Cloud, Amazon locker, and Spotify's US launch will be a big deal. On the subscription side they're facing steep competition from Sirius XM who's found a way to get into our cars, so Pandora they need to focus on generating some type of relevant ad content. Facebook's ad improvement (if you've been paying attention) has increased dramatically the past year. From random ads about salsa lessons and attractive singles nearby, to Sheryl Crow concerts (they know me too well). One thing to note is that Pandora was founded in 2000 and they just started using ads in their business model the past two years. I'm sure they can spend some of this IPO money to hire some good R&D people.
Another thing I wanted to mention today was why this tech bubble is different than the last. In '99, startups had the "get rich, or die tryin," mentality. Unlike 50 Cent, most startups did die off into the sunset, from a lack of a business model. To go public nowadays, Alan Patricof of Greycroft Partners, mentioned that you have to have a certain market cap and you have to raise a hefty load of money. A market cap between $25 million-$200 million is not acceptable if you want to IPO, yet it was in the late 90s. LinkedIn raised $352 million in last month's IPO, Pandora raised $240 million today. These companies have real revenues, real users, and a real business model. But Pandora is not profitable, and neither is highly anticipated Groupon. Pandora incurred $168 million in losses last year and Groupon looks to be in the $500 losses range. But investors are banking on a couple things here.
Jon Merriman, of Merriman Holding, was on Bloomberg West yesterday chatting about the Pandora IPO. He mentioned a couple of interesting things. Investors are bullish on these IPOs because of their rapid revenue increases, user base, and supporting cast. I mentioned last week that Howard Schultz being on the board of Groupon will help guide a young CEO in Andrew Mason. Moreover, Greycroft Partners are also an established VC firm and having them back Pandora is an important factor. Merriman did not recommend buying the stock today because of its market cap relative to sales figures and the increasing amount of competition from other companies. But investors are hoping that the sales and revenue growth numbers continue to increase as they have, which could eventually lead to a profit later down the road. Pandora's advertising model is at an early stage in the company's history and a big congrats to them because they've been through a lot. From lawsuit cases with music label companies to a failed IPO attempt in February, Pandora has been rewarded, for at least the short-term.
Based on LinkedIn's IPO surge and then dip(from $94 to $75), Pandora will dip as well. And remember, that LinkedIn just barely squeaked out a profit: $15 million last year. "Adult supervision" as Merriman stated yesterday, will be needed for the next set of IPOs and current IPOs to succeed. Although most of the recent IPOs don't have profits, they do have experienced silicon vets observing their movements and closely monitoring their financial prospectus for the near future. Reid Hoffman at LinkedIn, Rich Lefofsky at Groupon, and Steve Wozniak at Fusion-io have been around the block more than once. People's affinity and relation to Pandora's service is another reason there's high demand for this IPO.
LET'S GO BRUINS!!!
No comments:
Post a Comment