Pandora (NYSE:P) shares delved over 9 percent on Thursday from the Wednesday debut closing. It’s now exchanging below $16, the initial price of the Pandora IPO.
Obviously, for retail investors, $16 isn’t the relevant price because they can’t actually buy the IPO itself (that’s reserved for institutional participants). They probably paid larger prices and a lot of of them are therefore most likely holding sizable losses.
So is Pandora another tech dud? You know, among those overhyped and overpriced tech companies with no clear path to producing big profits in the long-term.
Pandora, at the time of its IPO, is unprofitable. The key reason is that they pay record labels for the service they supply to many users for free. Contrastingly, Google and Facebook don’t need to pay third-parties for the content material they freely provide.
Moreover, Pandora is in the inherently difficult businesses of making money from music content.
Even as music artists by themselves have gone after merchandising and tours to generate money, can Pandora really squeeze profits from this dry market?
The already-profitable LinkedIn (NYSE:LNKD), which IPOed on May 19, is currently down 25 percent from its debut session’s closing price.
Similarly, Youkou.com (NYSE:YOKU) and Dangdang (NYSE:DANG), two recent tech IPO by Chinese companies, have flopped in US trading.
So is Pandora just another IPO dud?
The jury is still out this early in the stage for Pandora (although it doesn’t look too promising). It’s also still out for LinkedIn, Youkou.com, and Dangdang.
In the long-term, not really surprisingly, it all depends on earning big profits. Baidu.com (NASDAQ:BIDU) shares, for example, fell for nearly one year after its IPO in late 2005. However, as the company earned robust profits, shares eventually soared several fold.
Meanwhile, many junk tech companies that debuted in the 1990s tech bubble have gone bankrupted.
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