Pandora Media Inc., the online-radio company, gained on its first day of trading as investors raced to benefit from the biggest surge in Internet share sales since the dot-com boom a decade ago.
The Oakland, California-based company rose 8.9 percent in its debut on the New York Stock Exchange, under the symbol P. It sold 14.7 million shares yesterday at $16 apiece, raising $234.9 million in its initial public offering. That was above the top of the range of $10 to $12.
Investors are flocking to technology IPOs after professional-networking website LinkedIn Corp. and Yandex NV, operator of Russia’s biggest search engine, provided first-day gains of at least 55 percent last month. Pandora was especially alluring after it sold only about 9.2 percent of its shares outstanding, compared with an average float of 24 percent for U.S. technology IPOs in the past year.
“It’s a small offering in a hot industry,” said Josef Schuster, founder of Chicago-based IPOX Schuster LLC, which oversees about $2.5 billion and bought Pandora shares. “That makes it very easy to place a stock.”
Pandora climbed $1.42 to close at $17.42 on its first trading day. It is among a dozen Internet companies to go public this year, the most in any year since 2000, at the height of the first wave of Web IPOs.
At the closing price, the company had a market value of about $2.8 billion, or about 20 times last year’s sales, compared with about 2.7 times for Sirius XM Radio Inc., the subscription-based satellite-radio service. Sirius XM had a market value of about $7.7 billion as of yesterday’s close.
“There’s pent-up demand for high-growth, exciting business models,” said Scott Billeadeau, who helps oversee $18 billion at Fifth Third Asset Management in Minneapolis. “There’s demand and there just aren’t many ways to get access to it,” he said. “After LinkedIn, there’s definitely some chasing going on.”
LinkedIn, like Pandora, made less than 10 percent of the company available in its IPO. Surging demand for new Internet companies, combined with a dearth of available shares, may give the businesses higher valuations than they deserve, said Francis Gaskins, president of industry tracker IPODesktop.com. That’s creating the perception of frothiness in the IPO market, even for growing companies with established revenue, he said.
“The size of the offering reflects the capital that the company wanted to raise and the reality that our largest shareholders aren’t interested in selling,” Pandora Chief Executive Officer Joseph Kennedy said in an interview today. “They are long-term believers and want to hold the stock, and that’s really what shaped the size of the offering.”
Apple, Amazon, Google
While Pandora will compete with peers such as Sirius, it may face a bigger risk staying ahead of established technology companies including Apple Inc., Amazon.com Inc. and Google Inc. which are investing in their own online music offerings.
Startups such as San Diego-based Slacker Inc. and San Francisco-based Rdio Inc., as well as CBS Corp.’s Last.fm, also provide competition by offering music through the Internet.
Spotify Ltd., the London-based online-music provider that’s available in seven European countries, has reached agreements with three major record labels and is close to a deal with a fourth to begin a U.S. service, which could start as soon as next month, people with knowledge of the matter said June 13.
Founded in 2000 by Tim Westergren under the name Savage Beast, Pandora makes 87 percent of its sales from advertisements that target users based on age, gender, home postal code and musical taste. Ads support the free radio service, though the company also sells subscriptions to users who prefer to listen without advertising.
Amid scarce supply, LinkedIn’s shares more than doubled in their first day of trading, giving the company a valuation of $8.91 billion. Yandex jumped 55 percent in Nasdaq Stock Market trading after raising $1.3 billion in an initial public offering that sold above the proposed price range.
Pandora, which has lost $92 million since 2000, planned to sell 6 million shares in the IPO, while existing shareholders planned to offer 8.7 million, according to the filing.
The annual loss shrank to $1.8 million last year from $16.8 million a year earlier as registered users topped 90 million. Royalty costs increased 21-fold since 2007 to $69.4 million last year, while revenue jumped to $137.8 million in the same period.
Hearst Corp., the New York-based publisher, planned to sell 4.4 million shares to pare its stake to 2.7 percent from 5.7 percent, the prospectus showed. The largest shareholders, Crosslink Capital, Walden Venture Capital and Greylock Partners, didn’t plan to sell shares in the IPO.
Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. led the offering. William Blair & Co., Stifel Financial Corp. and Wells Fargo & Co. also helped manage the sale.