February 11, 2011, 8:40 PM — Internet radio service Pandora Media on Friday filed documents with the U.S. Securities and Exchange Commission for an initial public offering of common stock, the company announced.
While Pandora said the "number of shares to be offered and the price range for the offering have not yet been determined," MarketWatch reports that the music service hopes to raise up to $100 million.
Morgan Stanley and J.P. Morgan Securities are the underwriters for the planned IPO, though William Blair and Company and Stifel Nicolaus Weisel also will play a part in the offering.
In its S-1 filing, Pandora, which launched in 2005, says it had more than 80 million registered users as of January and a more than "50% share of all internet radio listening time among the top 20 stations and networks in the United States."
Pandora claims to offer a "personalized experience for each of our listeners" by creating playlists using algorithms developed by its Music Genome Project that analyze up to 480 attributes for more than 800,000 songs from more than 80,000 artists. Bottom line: It tries to scientifically discern what kind of music a listener likes so it can create playlists the listener will enjoy.
The Internet radio service can be accessed via computer, smartphones such as the iPhone, Androids and BlackBerrys and other electronic devices. Pandora, which has nearly 300 employees and is headquartered in Oakland, Calif., is free to users and generates most of its revenue (more than 86 percent in the most recent reporting period) through advertising.
Pandora Fun Fact: The company incorporated in California in January 2000 as TheSavageBeast.com. (That URL now is a parked domain featuring ads in Japanese.) It became Pandora Media in 2005.
Now for the financials. Pandora has never been profitable, but is coming close. In the nine months ended Oct. 31, 2010, the company had a net loss of $328,000 (70 cents per share) on revenue of $90.1 million, versus a net loss of $18.6 million ($3.94 per share) on revenue of $31.4 million in the nine months ended Oct. 31, 2009.
Risk factors: Pandora acknowledges that "Internet radio is an emerging market and our current business and future prospects are difficult to evaluate." True enough, but again, the nine months ended last Oct. 31 indicate promise.
A more concrete risk factor is that Pandora has an accumulated deficit of $83.9 million. Further, Pandora says it expects to "invest heavily in our operations to support anticipated future growth" and that "we expect to continue to incur operating losses on an annual basis through at least the end of fiscal 2012." Hence the decision to have a public offering.
Red flag: "Our revenue increased rapidly in each of the fiscal years ended January 31, 2007 through January 31, 2010; however, we expect our revenue growth rate to decline in the future as a result of a variety of factors, including increased competition and the maturation of our business, and we cannot assure you that our revenue will continue to grow or will not decline."
Obviously the key here is how much the revenue growth rate declines and when. And that's why they call them risk factors.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.