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Pandora To File IPO, Looks To Raise $100 Million

Pandora Ipo

RACHEL METZ   02/11/11 07:27 PM ET   AP

SAN FRANCISCO — Popular Internet radio service Pandora is tuning up for an IPO later this year.

In documents filed Friday, Pandora indicated it would raise $100 million with an initial public offering stock. That figure will likely change as bankers gauge the demand to invest in or an 11-year-old company that has helped change the way people listen to music.

A target price for the shares won't be set until the IPO is closer to happening. The offering probably won't happen for at least three months.

Pandora's decision to go public is the latest sign that Internet companies sense the time is ripe to mine the markets for money amid growing excitement about digital media and online networking. Demand Media Inc., an online service that hires freelance writers to go write stories about frequently searched topics, made a big splash with its IPO last month and professional networking service LinkedIn Corp. filed its IPO papers last week.

In the past few days, AOL Inc. agreed to buy online news and opinion service Huffington Post for $315 million and The Wall Street Journal reported that online messaging service Twitter may now be worth $8 billion to $10 billion. Online coupon service Groupon Inc. is expected to go public later this year and Facebook – the most prized of all privately held Internet companies with a market value recently pegged at $50 billion – may file its IPO papers next year.

Given the growing fervor for widely used Internet services, it makes sense for Pandora to make the IPO leap now, said Inside Digital Media analyst Phil Leigh. "It's kind of like nuclear fission; we're seeing a chain reaction of these things," he said.

Pandora Media Inc. started out in 2000 as a music recommendation service called Savage Beast Technologies. It changed its name in 2005 when it launched an Internet radio service that allows people to stream music over the Web – enabling users to tailor playlists suited to their tastes to listen whenever they want, wherever they want to be.

The idea came from Pandora founder Tim Westergren, an avid musician who also has worked as a record producer. Westergren, 45, is now the company's chief strategy officer and one of its largest stockholders with 3.6 million shares.

Joseph Kennedy, a former salesman for automaker Saturn Corp. and executive for online banker E-Loan, has been Pandora's CEO since 2005. He owns 4.2 million Pandora shares.

Other major shareholders in line for a potential windfall are venture capitalists Crosslink Capital, Walden Venture Capital and Greylock Partners. Those three firms collectively own about 85 million shares. Hearst Corp., a major newspaper and magazine publisher, also is a major stockholder with 8.7 million shares.

Pandora lets users create "stations" by typing in the name of an artist or song on its site: The site's software uses that information to create a personalized stream of music that may include the artist or song you indicated plus other similar music. If you like a song, you can give it a thumbs-up. Songs you don't enjoy can be skipped, but you can only skip a limited number of songs. Pandora users have created more than 1.4 billion stations thus far.

In addition to its website, Pandora.com, Pandora also offers several apps that enable its use on smart phones like the iPhone and phones that run Google Inc.'s Android operating software.

The basic Pandora service is free, with most of its revenue coming from advertising, just like traditional radio stations. Users can pay more to get rid of the ads, enable unlimited listening time and more "skips" and receive higher-quality songs. Most people apparently are willing tolerate the ads. The IPO documents said 86 percent of Pandora's revenue came from advertising in its fiscal year just completed Jan. 31.

The company has lost $83.9 million since its inception and remains unprofitable, according to Friday's filing. In the first nine months of its last fiscal year, Pandora suffered a $328,000 loss on revenue of $90.1 million.

The filing said its independent auditor determined there was "material weakness" in Pandora's financial reporting practices. The company said it's trying to fix the problems.

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Filed by Bianca Bosker  |