Pandora prices IPO shares at $7 to $9

Online music service sets no date for public offering


Thursday wasn't the best day to drum up interest in your Internet IPO, at least if your company isn't named Groupon.

So music streaming service Pandora's amended filing with the Securities and Exchange Commission will be relegated to an after-thought in financial news round-ups -- at least for one day, anyway.

(Also see: Groupon to go public)

Pandora on Thursday provided more details regarding the initial public offering first announced in February.

Back then Pandora said it hoped to raise up to $100 million. That figure has been increased to $141.6 million, with shares priced to sell between $7 and $9 each. The company's stock will list on the New York Stock Exchange under the ticker symbol "P."

However, Pandora itself is only selling 5,000,682 shares, while existing shareholders are selling 8,683,318 shares. Pandora gets none of the proceeds from shareholder sales.

Additionally, the underwriters, led by Morgan Stanley and J.P. Morgan Securities, have an over-allotment option to purchase up to an additional 2,052,600 shares from Pandora itself.

What all this means is that, assuming an $8 share price, Pandora's net proceeds from the offering will be between $33.4 million and $48.7 million (if the underwriters’ over-allotment option is exercised in full, and deducting underwriting discounts and commissions).

In other words, most of the IPO money will go to current shareholders and whatever A-list pals the underwriters want to shower with free stock-market profits.

But there's more (or, perhaps, less). Pandora said in its S1-A filing that "approximately $29.7 million" will be used "to pay accrued and unpaid dividends on our redeemable convertible preferred stock."

Maybe I'm misinterpreting this, but it sounds as if Pandora could get as little as $3.7 million and no more than $19 million from the IPO to run its business, assuming an $8 share price. Given that it expects "to continue to incur operating losses on an annual basis through at least fiscal 2012" and has an accumulated deficit of $92 million since its inception in 2000, that's hardly anything at all, especially given the company's plans to "invest heavily in our operations to support anticipated future growth."

So while the IPO will value Pandora at $1 billion to $1.3 billion, it won't provide a whole lot of operating capital or pay down debt.

Pandora better keep increasing revenue, which went from $55.2 million in fiscal 2010 to $137.8 million in fiscal 2011 to $51.0 million in the three months ended April 30. It's going to need it.

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