The stock of popular but unprofitable Internet radio service Pandora Media Inc. increased in its market debut Wednesday, adding to the IPO frenzy that has some watchers talking tech bubble.
Its shares opened at $20 each and rose as high as $26 in early trading on Wednesday. That's up from offering price of $16, the high end of their proposed range. By afternoon, its shares traded at $18.75, up $2.75, or 17 percent, from the offering price. At that level, Pandora's 159.7 million shares were worth nearly $3 billion.
"In my opinion that's extremely rich for a company that's hoping to make a profit in fiscal 2012," said Scott Sweet, managing partner of IPOboutique.com.
In fact it is well above the current value of AOL Inc. ($2.1 billion), a relic of the previous Internet era that is working to transform its business from dial-up service to online and advertising. But it's a small fraction of such Internet behemoths as Google Inc. ($162 billion) or even Yahoo Inc. ($19 billion).
Pandora's offering comes amid a recent fervor for high-profile Internet IPOs. Though sky-high valuations have evoked the tech bubble of the late 1990s, investors hope this time it's different. Today's biggest Web startups are more mature than their '90s counterparts were, and some are already profitable.
The professional networking service LinkedIn Corp. was one of the first to make its public debut among in the latest generation of Web startups. Already profitable, LinkedIn has a market capitalization of about $7 billion.
Daily deals site Groupon Inc. has also filed to go public, though it has not yet provided details on its expected price range or the amount of shares it plans to sell. "FarmVille" maker Zynga Inc. is also expected to make its public debut soon.
Facebook, the owner of the world's largest social network, has indicated it will file its IPO documents before May 2012. Based on a Goldman Sachs Group investment, Facebook was valued at $50 billion at the beginning of this year.
Pandora, based in Oakland, Calif., got its start in 2000 as a music recommendation service, then known as Savage Beast Technologies. It changed its name in 2005 when it launched an Internet radio service that lets people stream music over the Web, letting users create custom stations based on songs, genres or artists. It also created the "Music Genome Project," assembling hundreds of musical characteristics, or "genes," into a "Music Genome." This analysis became the basis of Pandora's music recommendation service.
"It's not about what a band looks like, or what genre they supposedly belong to, or about who buys their records -- it's about what each individual song sounds like," wrote Pandora's founder, Tim Westergren, on the company's website.
The service is popular, but so far the company has not turned a profit. Pandora has 94 million registered users and it makes most of its money from advertising. It also offers an ad-free, premium service at a cost, but only a small percentage of its users have signed up for it.
In the most recent fiscal year, Pandora booked a loss of $1.8 million before paying dividends on preferred stock. Its revenue was $138 million.
"Unless they can continue to increase their subscribers or offer new material, obviously their losses will continue to grow," Sweet said. "I am not optimistic long term with Pandora."
Shares can be volatile on their first day trading. LinkedIn priced its stock at $45 in mid-May. The shares soared above $100 before noon on the day they hit the market and closed at $94.25 on a trading volume of 30 million shares.
On Wednesday, LinkedIn's stock fell $2.44, or 3.2 percent, to $73.90 in afternoon trading.
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