Show's over: Pandora skids in second day of trading

Share prices of online radio service Pandora skidded in its second day of public trading on the New York Stock Exchange (NYSE), falling nearly 25 percent from its closing price on Wednesday. Shares are now trading at a price below the company’s initial public offering price of $16.

Shares were trading as high as $26 after the company made its debut on the NYSE on Wednesday. But that slowly tapered off throughout the day, and Pandora ended the day trading at $17.42 at the bell. The price has since fallen by about 50 percent to close at $13.26 at the bell on Thursday. That’s 17 percent below the company’s IPO pricing.

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Pandora is the second high-profile Web 2.0 company that has skidded and has failed to generate a positive income for the majority of its operating history. Renren, another high-profile Web 2.0 company that made its trading debut on the New York Stock Exchange, hit the ground running on its first day of trading as well. But investors had a reality check and immediately began selling off shares of the company. The company’s share price went from $18.01 to $13.49, or a drop of about 25 percent, in a week. They ended trading at around $6.78 on Thursday, which is down about 62 percent from the closing price after the company made its trading debut.

Like Pandora, Renren has faced losses for consecutive quarters. The company lost around $64 million in 2010 and around $70 million in 2009 even though the company’s revenue grew 64 percent to $76.5 million, up from $46.7 million in 2009. The company jumped from a profit of around $8 million in the third quarter of 2010 to a loss of $34.2 million in the fourth quarter of 2010, and up from a loss of $10 million in the fourth quarter of 2009. Of the past 8 operating quarters, Renren has posted an eight-figure loss in five of them.

Pandora brought in $51 million in the first quarter this year ending April 30, more than double its revenue of $21.6 million in the first quarter last year. The company lost $6.8 million in the first quarter this year, up from around $3 million in the same quarter last year. Pandora brought in $137.8 million in its 2011 fiscal year and lost $1.8 million during the same period.

By contrast, LinkedIn’s trading debut last month went extremely well and the company now has a market cap of around $7 billion, well above the valuation of $4 billion it claimed when it priced the shares of its initial public offering between $42 and $45. But LinkedIn is also profitable, with the company reporting that its first quarter revenue in 2011 was up 110 percent to $93.9 million over the same quarter a year earlier. Net income increased to $2.08 million in the first quarter of 2011, up from $1.81 million in the first quarter last year.

Groupon, another high-profile Web 2.0 company that will soon make its public trading debut, has also faced similar problems to Pandora and Renren. Groupon has consistently lost money each quarter except for one — the first quarter of 2010, when it brought in an $8 million profit. Groupon lost $456.3 million in 2010 and $6.9 million in 2009. The company lost $146.5 million in the first quarter this year. It filed to go public earlier this month.

Pandora runs an online service that lets its users pick genres, songs and musical groups and then builds a radio station that caters to that style of music. Listeners can access the service through a website or a desktop application. Pandora also has applications for the iPhone, Google’s Android mobile operating system and other mobile devices.

The company now has about 94 million registered users and 800,000 songs in its online music library, according to its most recent filing. That’s up from 53 million users in the first quarter last year and 82 million registered users at the end of its 2011 fiscal year. Of those registered users, 34 million are considered active users as of the end of April, up from 18 million at the same time last year and 29 million at the end of its 2011 fiscal year.

Advertising has accounted for more than 90 percent of the online radio service’s revenue for most of the site’s life, according to the filing. But revenue from Pandora’s subscriptions, which let subscribers skip the ads that otherwise come on occasionally between songs, has been growing steadily. Subscription revenue now accounts for around 15 percent of the site’s total revenue as of the end of April.

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