Pandora Media Ready for IPO

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Pandora Media, the popular American internet radio service, has filed a new prospectus with SEC regulators, stating that the company has received $30 million from underwriters including Citigroup Global Markets, JPMorgan Securities, and Morgan Stanley (NYSE: MS  ) .

Pandora allows listeners to create personalized stations of artists, composers, songs, and genres. Listeners can also choose from preprogrammed stations organized by genre, create up to 100 personalized stations, and use a combination feature to listen to two or more of their stations at one time.

Pandora sells advertising and subscriptions for its music streaming service for most devices, including computers using Windows and tablets and mobile phones using iOS, Android, BlackBerry OS, and webOS.

Since the first of this year, Pandora says it has gained 12 million more registered users, for a total of 94 million. Despite the rapid adoption, the company isn't profitable and doesn't expect to be so in the next fiscal year, so if you buy stock, don't expect a return any time soon.

But the future looks promising. Over the past two years, revenues from advertising and subscriptions have been steadily improving. Net losses are also increasing; however, the ratio of loss to revenue remains fairly constant, comparing the first quarter of the last fiscal year to the same period in this fiscal year. That is a positive sign.

Pandora states that its "current business plan depends upon arrangements pursuant to which we obtain licenses from, and pay royalties to, copyright owners of both musical works and sound recordings." A large chunk of Pandora's expenses is royalties. But the company has a very strong appeal to artists. As co-founder and Chief Strategy Officer Tim Westergren says: "Every hour that goes from broadcast radio to Internet radio means more money for artists. That's because Internet radio, unlike broadcast, pays performance royalties. [In 2010], we made $50 million in advertising revenue, and $30 million of that went to artist royalties."

To date, Pandora has financed operations with more than $50 million in venture capital. Part of the proceeds of the IPO will go to pay about $29.7 million in accrued and unpaid dividends on the company's convertible preferred stock.

Pandora grew out of Westergren and Will Glaser's 1999 Music Genome Project. A trained music analyst analyzes each song in the Music Genome Project using up to 450 distinct musical characteristics. In January 2000, Westergren and Glaser joined forces with Jon Kraft to found Pandora Media to bring their idea to market.

Under the direction of Nolan Gasser, the musical structure of the Music Genome Project, made up of five genomes (pop/rock, hip-hop/electronica, jazz, world music, and classical), was codified and became the basis of Pandora's success. Earlier this month, Pandora added a comedy category. As Westergren said: "Pandora is about creating a great, personalized radio experience. Comedy is a natural part of that experience, and it's something our listeners have been asking us to deliver for a while. We are delighted to now be able to give people a mix of familiar and new comic material that they'll love to listen to."

Pandora will add 10,000 clips by more than 700 comedians to its archive and allow users to sort through them in the same way they do the site's music. You'll pick a starting place -- a comedian, a type of comedy, or even a specific joke -- and then let Pandora send a stream of similar material chosen by analyzing your comedic taste.

Pandora has partnered with the makers of more than 200 consumer electronics devices, including Alpine, Panasonic, Pioneer, Samsung, and Sony (NYSE: SNE  ) . The company has also developed relationships with major automobile manufacturers, including Ford (NYSE: F  ) , Mercedes-Benz, and the BMW Group's Mini, as well as with suppliers to those automakers, to integrate the Pandora service into current and future automotive sound systems. To date, the Pandora app has been downloaded more than 50 million times on the most popular smartphone platforms in the United States.

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Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2011, at 5:59 AM, Samfund wrote:

    All these IPO's are sign we are getting close to a top in the market....

  • Report this Comment On May 31, 2011, at 9:50 AM, bottomfisherman wrote:

    Has yet to turn a profit. Content is horrible. How long can they still be a free service and still expect to turn a profit except by spamming their airwaves with to many commercials. Bankrupt and sold for loose change in 2 years.

  • Report this Comment On May 31, 2011, at 11:07 PM, JoePhx wrote:

    Gee, some people will complain about anything and everything.

    Pandora has great content that you have a measure of control over. If you don't like something, tell them and they won't play it again. Like something, tell them and they'll play more music like it. Customize dozens of "stations" to match any mood - Check. How long can a free service last while broadcasting commercials??? Well, let's see, network TV and commercial radio have been at it for well over half a century. Hmmm, must be a pretty suspicious business model, eh? Oh, and if you don't want to listen to the commercials, you can pay $36 per year to go commercial free (which I do). That means it's not a free service any more, just an amazingly inexpensive way to avoid the other really crappy music delivery models. Pandora is a favorite for many of my friends, as well. 96 million people probably are on to something. As I recall, many of today's internet heavyweights started out not making any money as they built their moat. I'll bet on Pandora.

  • Report this Comment On June 03, 2011, at 5:51 AM, patymedia wrote:

    I do love Pandora too, it's just the best service to get the music you like. I'll bet on it too, expected trade date is 05/16/2011 !

  • Report this Comment On June 09, 2011, at 4:56 PM, Mungoid wrote:

    Don't they make affiliate money from itunes and amazon when someone buys a song or album through them? I know last year i probably bought at least 6 albums through pandora.

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