Pandora ups IPO price again

Internet radio company set to offer shares at $16 on Wednesday

Pandora Media's underwriters smell blood.

For the second time in a week, the Internet radio company's initial public offering price has been increased, this time to $16 from the $10 to $12 range announced last Thursday, which itself was an increase from the original range of $7 to $9.

(Also see: Only excitable rubes buy Internet IPO shares on Day 1)

This is an old Wall Street trick. The underwriters jack up the offer price at least a couple of times because investor interest in the stock has been positively overwhelming!

This, of course, creates the impression that investor interest actually is positively overwhelming, even if really isn't. Still, when the game is played well, the end result is positively overwhelming investor interest in the shares!

Which means a whole bunch of people will pay far too much on the first day of trading for a newly public company's shares. And that's what will happen on Wednesday when Pandora goes public, trading on the New York Stock Exchange under the ticker symbol "P".

Remember, Pandora, while a great service, remains a money-losing endeavor. Rolfe Winkler over at the Wall Street Journal has a insightful piece analyzing Pandora's business in which he warns that the company's widening losses -- despite increasing revenues -- betray "a lack of operating leverage."

"Investors shouldn't chase the shares if its stock-market debut is as strong as expected on Wednesday," Winkler writes.

Yet enough will so that Pandora could top $40 a share or more in its ticker debut. I'll predict a high of $44 and a low of about $30, with a closing price in the mid-30s.

In a month, of course, Pandora shares will be in the low 20s, and the shareholders who bought high on the first day won't be able to find any music on Pandora to cheer them up.

Pandora is selling 14.68 million shares in the offering, with 6 million coming from the company and 8.68 million being sold by current shareholders. At $16 each, the IPO will raise $96 million for Pandora and give it a value of $2.56 billion.

Lead underwriters for Pandora's offering are Morgan Stanley, J.P. Morgan and Citigroup.

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