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Pandora IPO Raises $235 Million, But Doubts Persist About Profitability

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Pandora completed its initial public offering today, selling 14.7 million shares of stock at $16 each, according to Bloomberg, after initially selling for $10 to $12 per share. The results were a big success, especially considering that Pandora had initially hoped to raise only $100 million.

Today’s trading gives the company a valuation of $2.6 billion, notes the WSJ. Wednesday, the trading public will get a chance to buy Pandora stock, under its new stock symbol, P.

Last week, Pandora raised its price and increased its offerings by 1 million shares after realizing how strong interest was in its stock; the revised prospectus was released on Friday.

The big numbers behind this IPO are a bright spot, but over the last few weeks investors have increasingly questioned Pandora’s business model. Rich Greenfield of BTIG Research wrote a blog post Friday telling investors not to invest in the stock, explaining: “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 (fees to music labels).” In addition, the company’s profitability reach and frequency “pale[s]” in comparison to terrestrial radio, he noted.

The takeaway: Pandora is growing fast, but unlike other web businesses, that growth won’t necessarily lead to more profits.

The company has lost $92 million since 2000, with more than half of that being in the last three years. About half of its revenue is eaten up by copyright fees paid to record labels and music publishers.

For a counterpoint, check out the Radio & Internet Newsletter’s analysis of how Pandora could become wildly profitable in a few years. (But bear in mind that newsletter’s chief sponsor is Pandora.) Basically, the company would have to greatly increase its sales efficiency and start running a lot more commercials, all while keeping up its excellent growth numbers.