Pandora's Wall Street debut was a bust


You may have read uninformed commentary elsewhere that Pandora Media’s IPO may not be busted because the stock price could still rally back to the IPO price. Sorry folks, it doesn’t work that way.

There’s no official definition of a busted or broken IPO, since the big investment banks don’t want to think about their bad deals. The rule of thumb, though, is that an IPO is broken if it closes below the IPO price anytime within a month of the offering. Pandora Media has now done so twice in three days of trading.

A late rally on Friday made Pandora’s performance positive for the day. It closed at $13.40 – up 14 cents for the day but still well below the $16.00 IPO price. The stock has now traded in a range of $12.16-26.00 in three days of trading, with the only close above the IPO price coming on Wednesday (6/15) at $17.42.

Pandora now has official coverage by a second Wall Street analyst. Richard Greenfield of BTIG Research, who had been a critic of the IPO, has initiated the stock with a “sell” rating and a target price of $5.50. That’s actually up from his pre-IPO estimate of $4-5 as the real value of the stock.

The analyst sees Pandora turning profitable in 2014 after a few more years of red ink. He points out the obvious problems with the business model: “While Pandora is creating a large active user base, its reach/frequency continues to pale in comparison to terrestrial radio, as does its profitability. Pandora’s fundamental problem is that active users and listening hours are growing rapidly, but those listener hours have fixed (and annually escalating) royalty costs per streaming hour (fees to music labels).”

Greenfield joins John Tinker of Maxim Group in covering the stock. They have somewhat differing views of the company’s worth. Tinker rates Pandora a “buy” with a target price of $23.

That’s a huge spread, of course, from $5.50 to $23.00. For now, the stock price is hovering around $13 – kind of in the middle. The coming week will tell whether Pandora can hold onto a double digit stock price or start sliding toward penny stock territory (anything below $5).

RBR-TVBR observation: At this point it may be optimistic to project that Pandora will be able to post a net profit in 2014. You first have to post an operating profit before you can think about getting to a net profit.

RBR-TVBR seems to be the only one to notice that Pandora’s operating (negative) cash flow moved the wrong way – and big time – in fiscal Q1 after improving last year.