Pandora Media (P), a leading Internet radio company with 94 million registered users, raised $235 million on Tuesday by offering 14.7 million shares at $16, 45% above the midpoint of its upwardly-revised $10 to $12 range, giving it a market capitalization over $3 billion. The company had previously filed to offer 13.7 million at a range of $7 to $9. Pandora Media has started trading on the NYSE under the symbol P. Morgan Stanley, J.P. Morgan, and Citi acted as lead managers on the deal.
Backed by a slate of notable VCs, Pandora Media launched its free Internet radio service in 2005 and has quickly scaled to take a commanding 58% share of the market with 34 million active users. Pandora was designed to personalize the online radio listening experience. The company maintains a music catalog of over 800,000 songs spanning 240 genres, with each piece being categorized on up to 450 fundamental attributes in order to craft individualized radio stations based on user preferences. The company began by streaming its ad-supported services to desktops and laptops, however, Pandora has seen strong adoption in mobile devices (currently 60% of listener hours) and maintains partnerships with makers of over 200 "smart" consumer electronic devices. Beyond consumer electronics, the company has hosted negotiations several auto manufacturers, including Mercedes-Benz and Ford, as well as aftermarket audio system suppliers in order to enter the automotive market. The service is expanding beyond current musical offerings, with the company preparing more varied programs including comedy (launched in May 11), news, sports, and talk.
Given Pandora's rapid growth in user listener hours and its experienced management team, Pandora appears to be well positioned to expand advertising in a $24 billion addressable ad market. Usage-based content costs are the key concern for this story, as they have contributed to a track record of operating losses and may limit long-term margin upside. Nonetheless, Pandora can leverage its market dominance and "Music Genome" to increase revenue penetration through higher ad inventory sell-through and ad load. This market opportunity and very thin IPO float could amplify strong investor demand for this innovative, high-growth Internet story.
