Pandora (NYSE: P), the unprofitable Internet radio company brazen enough to demand a single letter trading symbol, made its public debut on Wednesday.
At $16 a share, or $2.6B, Pandora was priced at about 19X last year sales. On its first day of trading, its shares rose as much as 63% from its IPO price to a high of $26, giving it a whopping $4.2B market capitalization. Not too shabby considering its nearest competitor, Sirius XM (Nasdaq: SIRI) is trading at only 2.6X revenue and Pandora’s own board appraised its stock’s value at $3.14 a share, or approximately $500M, a mere six months ago, according to documents filed with the SEC.
Pandora’s tune quickly changed from partying like it was 1999 to singing the blues as its shares progressively declined over the next two trading sessions. But the real shocking blow arrived this morning when BTIG analyst Rich Greenfield slapped it with a sell rating and initiated coverage with a $5.50 price target.
Also in agreement is Anupam Palit, Senior Equity Analyst at GreenCrest Capital, a cutting-edge research provider of late-stage private companies, who recommends that investors, “Stay away until the price comes back down to earth.” Palit has a $7.50 a share price target on Pandora – a still respectable $1.2B valuation.
To add further salt to the wound, Pandora had put only about 9% of its shares on the public market. Playing the low-float game couldn’t even sustain this one. Oh well, at least the VCs were able to exit at $16.
“With Pandora competitor, Spotify raising $100M this morning at a $1B valuation, it is indeed a great time to be private,” added Palit.
Perhaps we should view Pandora’s lackluster public performance as affirmation that companies lacking profitability simply need more time in the private company marketplace to nurture their business. What do you think?