Wall Street likely to ignore Pandora naysayers


Today’s the day (6/14) that Pandora Media is expected to price its IPO. There are plenty of skeptics, but both the price range and total offering size have already been increased, so look for investors to snap up the shares. 

RBR-TVBR previously noted that Jim Edwards of BNet had questioned the viability of Pandora’s business model, suggesting it is really a “mutual suicide pact” between its music costs and its revenues. Now there are more voices warning anyone who will listen to stay away from this IPO.

Media analyst Rich Greenfield at BTIG told clients that the stock really looked to be worth something in the $4-5 range, not the $10-12 now contemplated. Compared to traditional AM and FM radio, he said, Pandora is far behind in terms of reach, frequency and, importantly, profitability.

MarketWatch columnist John Shinal wrote after reading through the IPO prospectus that Pandora Media has “no clear path to profitability.” He noted the ever-increasing music royalty rates spelled out in the prospectus – and the fact that Pandora gets no volume discount, just an ever larger bill to pay the record labels.

Morningstar analyst Rick Summer is also negative on the IPO, citing the uncertainty of music royalty rates after 2015 and predicting that the labels will want even more. His estimate of what the IPO price should be was in line with Greenfield – six bucks.

RBR-TVBR observation: Our prediction is that the offering will price at the top of the projected $10-12 per share range (and maybe go over) and that the full greenshoe will be picked up. That doesn’t mean we’ve change our mind about Pandora’s business model. Nor would we want to own any of the shares. But the hype is going to drown out those who are shouting “Internet bubble” and the stock will jump Wednesday on the NYSE from whatever the IPO price turns out to be. The problem is making this business ever turn a profit.