Pandora Sings Then Slumps on First Day

No bubble effect as it closes only $1 over opening price

If LinkedIn’s IPO was marked by a loud “pop,” Pandora’s market debut was mostly a muted hum.

After shares of the newly public Internet radio company hit a high of about $26 Wednesday morning, they gradually fell throughout the day, finally trading at $17, just above its offering price of $16.

While it wasn’t a blockbuster debut on par with LinkedIn’s IPO last month, analysts said it was a solid showing, especially considering that the overall market slumped Wednesday.

“I think we expected some volatility in early trading,” said Matt Therian, an analyst with Renaissance Capital, an IPO advisory firm in Greenwich, CT. “It’s a good sign that it held up even though the rest of the market had a pretty bad day.”

The Oakland, Calif.-based music streaming service, which will trade under the symbol “P” on the New York Stock Exchange, is the latest company to go public in what is expected to be a tech IPO boom.

Last week, after announcing plans to offer 13.7 million shares at $7 to $9 a share, Pandora increased its offering to 14.7 million shares at $10 to $12 a piece. Tuesday night, the company raised the offering price again, opening trading at $16 per share. 

Anupam Palit, an analyst with the New York-based GreenCrest Capital, said he thought Pandora’s initial offering was right on point.  At $7.50 a share, the company’s valuation would have been a not-so-shabby $1.2 billion, he said.

But as the figures went up, he said, “I thought it was starting to get expensive.”

Pandora’s $26 dollar high shows that investors are excited about trading in technology, but, as talk about the company’s overvaluation spread throughout the day, some of that giddiness dissipated, he said.

“There are only so many new tech IPOs taking place,” Palit said. “If you want to, as an investor, invest in this space, there aren’t that many companies. A lot of investor dollars are chasing very little supply."

Since LinkedIn’s roaring IPO in May, the company has fallen about 20 percent from its high, he said. Pandora traveled a similar path, but over the course of a day.

“So long as there’s this supply-demand imbalance, you’re going to see this happening to these kinds of companies,” he said.

As the more profitable “IPO darlings,” especially Facebook and Zynga, make their public debuts, Palit said tech valuations will start to even out.

“There will be more opportunity costs and more places to put your money,” he said. “And at that point, you’ll see some these valuations come down to the ground.”