Pandora Coming Public in IPO, What You Need to Know (SIRI, AAPL, RNWK, AMZN, MSFT)

Pandora Media, Inc. will likely soon be a public company.  The leader in internet radio filed its preliminary IPO paperwork on Friday evening.  Terms such as a share count and a price range were not set, but the offering is listed as being “up to $100 million in common stock.”  The company has not selected an exchange to list or a stock ticker.  The initial joint book-runners in the filing are Morgan Stanley and JPMorgan, with co-managers listed as William Blair and Stifel Nicolaus Weisel.

Pandora offers a customized and personalized listening experience based solely upon your artist choices along with The Music Genome Experience and an algorithm geared around the music preferences of each listener to adapt play lists in real-time.

The latest statistics are pretty amazing.  As of the end of January 2011, it has more than 80 million registered users and claims a market share that is over 50% share of all internet radio listening time among the top 20 stations and networks in the United States.  The Pandora service launched in 2005 and its listeners have created more than 1.4 billion stations.   The claim from the company is in excess of 800,000 songs from over 80,000 artists and that is supposed to be the largest analysis of music in the world.

Pandora is no longer just a streaming internet radio for your PC.  The service is available through the streaming service to traditional computers, but it also has developed Pandora applications for smartphones (Android, Blackberry, and iPhone) and has partnered with the makers of over 200 consumer electronics devices.  The device makers include Alpine, Panasonic, Pioneer, Samsung and Sony; and it has relationships with Ford Motor Company (NYSE: F) , Mercedes-Benz and MINI (BMW Group) and their suppliers to integrate the Pandora service into current and future automotive sound systems. Pandora may not have the same content but it is going after Sirius XM Radio Inc. (NASDAQ: SIRI).

There is more competition here.  Apple Inc. (NASDAQ: AAPL) is a competitor as well with its iTunes music store.  RealNetworks, Inc. (NASDAQ: RNWK) also competes with its Rhapsody, a subscription and advertising-supported music service at  Ultimately, Inc. (NASDAQ: AMZN) for its digital songs and CD sales and even Microsoft Corporation (NASDAQ: MSFT) for its Zune system are all competing for a part of the same music-spend dollars.

Fiscal-2010 revenue was $55.2 million and $90.1 million in fiscal 2010 and the nine months ended October 31, 2010, respectively. Its net loss was $16.8 million and $0.3 million in fiscal 2010 and the nine months ended October 31, 2010, respectively.  Pandora has to obtain licenses and then pay royalties to copyright owners of both musical compositions and sound recordings, and the royalty expenses from the sound recordings make up the highest expense in the business.

There is still a huge break in advertising dollars versus subscription dollars.  In the total revenues picture of $37.689 million for the quarter-end of October 31, 2010, its ad revenues were $32.683 million versus paid subscription revenues of $5.006 million.  Pandora had some $40.8 million in cash and cash equivalents as of October 31, 2010.

  • Some of the venture and private backers include Entities affiliates of Crosslink Capital, Walden Venture Capital, Greylock Partners, Labrador Ventures V-B, The Hearst Corporation, GGV Capital, and more.  As of January 31, its outstanding shares are as follows:
  • 151,805,230 shares of common stock held by approximately 137 stockholders;
  • 403,298 shares of common stock issuable upon exercise of warrants at a weighted average exercise price of approximately $0.71 per share; and
  • 33,407,775 shares of common stock issuable upon exercise of outstanding stock options.

There is a question here that is a viable question.  Will a larger media player or a larger company acquire Pandora?  This was not one of our own selections in the Top 17 IPOs to Watch in 2011, but it easily could have been one.