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?
I think the SEC should be forced to change its 500 SHAREHOLDER RULE and allow any investor who wants to buy shares to do so, not just accredited investors. This way VC will be unable to trick the public by cashing out their junk on non-accredited investors. Small time non-accredited investors would already be in the stock and are less likely to sell shares because they have bought in for reasons beyond a mere dumpfest on IPO day (The old S-1 EXIT STRATEGY). I heard that Congress is revisiting the Sec. Act of 1934 to change the 500 shareholder rule to 1000 and to allow non-accredited investors to purchase shares up to the 1000 shareholder rule…. in my opinion, a change like this could be the best thing for America since the first Ford Truck came off the assembly line.
Write your Congressman and let him know, now is the time stop the discriminatroy investing practices and allow ANY AMERICAN CITIZEN to buy stock in ANY PRIVATE COMPANY – Up to 1000 non-accredited shareholders is the only way out of this economic crisis. Small business’s go out of business EVERYDAY because they cannot rasing any more capital due to ridiculous regulatory burdens. Small business employs more Americans than any other institution.
Thanks for commenting, Rick. I could not agree more. Check out my previous post, http://nowstreetjournal.com/2011/06/16/proposed-legislation-in-support-of-the-private-company-marketplace-pcm/ on the topic
Yes, nice work NSJ, exactly… but we cannot stop there. One of the biggest problems that plauges the US Capital Markets, when speaking of start-up companies, is the fact that many times they are forced into pink sheet markets where they are eaten alive by short players and stock manipulators. Companies like Sharespost require a minimum income for a company to be $10,000,000 per year in order to be a member and sell shares. Their program does nothing to help small businesses. Again, start-up companies are still forced into pink sheet and OTCBB companies. Some small companies have no options because they have less than $100,000 in income and cannot even get DTC listing to trade their shares. Instead, they must reverse merge into a shell company that has unprecedented negative publicity from the failure of the previous owners. This mix generally causes hundreds of good business to go south real fast and their investors lose all thier money.
What needs to happen is secondary market share platforms need to be required to accept start-up companies that make $100,000 in annual income or less… not $10 Million dollars! That is ridiculous… I don’t know of one single start-up company that has $10,000,000 in annual income during their first year of business. I’m sure there is one out there… I just can’t think of one off hand.
So, when the dust settles in Congress, and they allow 1000 non-accredited investors to partake in the generation Pre-IPO wealth, it will stifle the current policy that allows only filthy rich investors to make even more cash. However, until secondary share sales platforms like Sharespost are required BY LAW to work with small income start-up companies with less than $10 Million Dollars in annal income, these efforts to rebuild America are fruitless. My opinion here is that $100,000 should be the amount of capital need to be raised by a private start-up company in order to post on Sharespost, not $100,000 in income. This way it would show that there is support for what the small start-up company is doing and the investors could then decide if an investment would be right for them.
What is happening right now on Sharespost is that well established private companies are merely using the Second Market as a company “Valuation Tool” to estimate what they can cash-out for on the open markets. What this is leading to is a hype fest and boat-load of unsuspecting non-accredited investors getting “hosed” by Venture Capital players in their exit strategy.
Do they care… heck no. But I do, and I will write about this for sure. Change the rule to 1000 non-accredited investors and force Sharespost and all the others to accept new companies based on $100,000 in capital generated for their start-up ~ regardless if the funds came from accredited Millionaire investors or a non-accredited grandma with $300 bucks to her name who wants to invest in a cure for alzhiemers. BTW: If Grandma were allowed to invest her $300 dollars in Facebook when it was first presented behind closed doors… Grandma would be sitting on a cool $180,000 today. Why should ANYONE in America be denied any investment opportunity? Unless the powers to be were somehow concerned Grandma might make a few bucks… instead a select few Multi-Millionire accredited investors cashing in when Grandma is allowed to buy her shares on the public markets!
I also believe that VCs should be locked in for 1 year, no matter when they made the investment, post IPO. Same reason – they hype up the shares for retail, and then get out before the harsh light of quarterly reporting sets in. It’s downright criminal that they can get out with all their insider information. In fact, any board member with options should be held to the same standard. Only founders and employees should be able to sell, with a sliding scale depending on ownership.