Pandora, the music streaming company, has just floated a small percentage of its shares and seen its valuation soar to $4.2bn in the first hour of trading on the New York stock exchange. Pandora has lots of users and loses lots of money.
The company reported revenue of $51m, with a net loss of $6.8m in the three months to the end of April. Most of its revenue comes from paid advertisements.
As a long time internet programmer who would love to come up with an idea like Google or Pandora or Facebook, my first reaction is “lucky beggars”. Then reality hits and I ponder my pension fund and a share-based bond I have – neither is doing particularly well and I suspect both are investing in stocks like Pandora. Wise or not? I’d say the answer is “not” unless you sell at the right time.
Look at the Pandora business model, translate it to the real world. I sell shirts. I don’t make them, I buy from other people (Pandora paid $29m in music royalties in three months to the end of April). All I do is buy in the shirts and sell them on. Now I’m going to start giving them away. Each one will come in a bag with an ad on it. I’ll also start a premium members club where, for a very small fee, you can get extra shirts and ad-free bags.
Sounds daft, doesn’t it? But here’s yet another technology offering defying all the laws of sensible economics and the pension funds and loads of others are piling in. I suspect the wiser people took a quick profit and sold after a couple of hours. I also suspect my pension fund will still be holding the shares when the world realises the emperor has no clothes and consigns Pandora to the pit where so many other technology companies go.