6 ms·

Pandora Files To Go Public

101 points by pitdesi 16y ago

martythemaniak 16y ago
You know something's screwed up when you can buy a company's stock, but not their product. Canadian music and copyright laws are terrible.
pitdesi 16y ago
And the IPO frenzy starts heating up... like it's '97
- davidu 16y ago
  Not really. Go find a company from '97 that had $70 million in revenue and was breaking even.* If there is a company, it might have had absurdly inflated ad-based revenue when CPMs were like $30.
  - pitdesi 16y ago
    ok, maybe more like 95... Netscape had $80mil in revenues and was close to break even (made a profit in '96) http://www.secinfo.com/dRqWm.8Ae8.htm#49o5 http://www.secinfo.com/dRqWm.8Ae8.htm#49o5
    - davidu 16y ago
      Netscape absolutely deserved to go public based on any metric. The future could not be predicted based on their inaction and Microsoft's dominance.
zacharycohn 16y ago
I don't know much about the market/strategy behind IPOs. Is it a good idea to IPO if you just lost ~$325k? I assume they have intelligent reasons behind the IPO - can someone explain the rationale?
- yumraj 16y ago
  It's not just about profitability, valuation takes future cash flow into account. So, if the market thinks that Pandora's cash flow would increase without much risk, and they do have healthy revenue, they can have a successful IPO. Think about Tesla, which is much more in red but had a great IPO.
- adamt 16y ago
  The article states they lost $328k on revenues of $90M for the first 9 months of the year. The $328k loss is not really material (either as a proportion of revenue, or absolutely versus the size of the business) they are essentially breaking even. If you look at the numbers (image in the article) The $328k loss also includes some exceptional charges, they made an operating profit of $1.15M in the period. Their revenues in the same 9 months of last year were $31m, so they have tripled their revenues year on year. Over the same period their costs less than doubled. If one were to extrapolate this growth rate forward by just one year (a bit crude, but makes a point), they'd end up with $270m revenue, on $170m costs so $100m profit. They are now breaking even - which is a simple metric of a sane business/proven model, doing significant revenue and growing very quickly. So now they are in an attractive state for the markets. In terms of strategy, Techcrunch shows their first VC round was back in 2000, with significant further rounds in 2004 and 2005. One could safely assuming the overriding factor is that VCs will be looking for an exit. An IPO will also provide the company with significant injection of operating cash, along with liquid paper (stock) with which they can use in further acquisitions
  - rradu 16y ago
    Still seems weird seeing a company that's not even profitable yet go public. I don't expect the initial demand for their stock will be that high, despite the growth.
    - jonknee 16y ago
      Plenty of companies go public before becoming profitable, it's a way to raise capital. Tesla Motors comes to mind for a recent example. Same for Clear.
brikmaster 16y ago
It allows their investors to sell stock and get their money out.
davidu 16y ago
This company is almost entirely investor owned. Geez. It's been saved from the brink of death so many times, the actual employees and founders really aren't going to get a tremendous windfall for their efforts.
- robryan 16y ago
  At least they will get something which is better than if they didn't let investors save it. A quick look seemed to reveal they had pretty high salaries though so it's not all bad.
troymc 16y ago
I can't get Pandora in Canada (unless I use a proxy), so I don't really know how it works. I was struck when I read: "About 86 percent of Pandora’s revenues ($78 million) comes from advertising, the rest ($12 million) comes from subscriptions." which made me think, wow, Pandora is kind of like a newspaper, magazine, or cable TV network!
- longarm 16y ago
  Pandora commands higher than average ad rates. Remnant (which is bargin basement inventory) is somewhere around $5cpm and I don't think they sell to networks for display to keep demand high. It's actually hard to get inventory there unless you are a premium buyer. For those of you who don't know or care much about online ads, all this basically means is that almost every other publisher (Huffpost, whatever) would kill to Pandora's rates. The fact that they aren't incredibly profitable shows how tough the business is. God knows how Grooveshark makes any money.
- leon_ 16y ago
  Yeah, can't get it here in Europe too. Thus I've thrown something together to get it running over TOR. Luckily only the control interface checks if your IP is from the US. The traffic heavy so streaming doesn't have to go over TOR. https://github.com/jsz/PanTORa https://github.com/jsz/PanTORa
johnwatson11218 16y ago
I think Pandora is a good company to buy because they have superior technology. I pay the $30 or so for the annual subscription to get unlimited listening and no ads. I have tried other services like this but I always come back to Pandora. I have read several articles that talk about the techniques they use to define a "station" and I think it is pretty solid. It is my understanding that they have hired musicians to listen to each of the songs they stream then rate each one according to dozens of factors. The factors include things like "acoustic guitar", "strong melody", "high studio production values", "gritty vocals", etc etc. Then they are able to do some kind of cluster analysis on that dataset. So that if you put in "Stone Roses" you hear music from that band but then others that have a similar sound. I find about 2 or 3 new bands that I really like every week. I have actually started buying CDs again.
- sp332 16y ago
  They actually train their people in music theory, because they pull the music apart and list a few hundred features. Depending on the genre, there are different lists of musical features that might differentiate the songs. This is what makes Pandora unique from Last.fm, or Ping, or other "social" music discovery sites. Instead of recommending songs according who likes them, it learns what kind of music you like. It looks across genres and artists to the actual musical features of each song.
  - johnwatson11218 16y ago
    OK, that is good to know. I had talked to somebody about this problem several years ago and I had thought that you could start with some kind of metric space and see which songs were 'close' to each other. The guy I was talking to seemed to view the problem as a kind of Bayes Theorem problem. The example being that if you had some obscure Beatles album then you most likely had 'Abbey Road' but the inverse probably wasn't true and that is where a software service could step in ... to recommend the obscure album as one you would probably like. One thing that I really like about the service is finding artists that seem to lead to lots of other great songs. It isn't always who I think it is. For example on a lark I put in "New Radicals" because I liked one of their songs and I was so impressed with how well that defined a particular sound. When I put in big names like the Beatles or Rolling Stones I don't think I left those stations defined for very long. I wonder is there is some kind of structure to the what Pandora has calculated that could show which bands or songs seem to be most influential.
jdavid 16y ago
I think Pandora will go back into heavy losses if they raise money. I love Pandora as a service, but it's a far cry from being a Netflix. ( a long time paying customer of both ) Pandora's revenue is threatened by so much, RIAA contracts, pirating, advertisings race to zero ( via google ), etc... They know this, and they will need to reinvent themselves to be worth anything. As a result I predict they will blow the 100 million on radically new business methods. Considering the success rate of music companies... I am worried.
- aaronblohowiak 16y ago
  I hope they spend it on advertising. Their product rocks, i think they just need wider exposure. They also claim exclusive providence to being able to authentically post jobs in the bay area looking for "rock stars" to help out their company ;)
  - longarm 16y ago
    That would be a pretty bad sign. I sure as hell wouldn't invest in a company that's going to turn around and spend the money they raise on ads. They should be building a war chest and their biz dev and legal teams to get some leverage on the labels. Regular radio pays $0 of their revenue to labels, Pandora pays $.50 of every $1.
    - aaronblohowiak 16y ago
      Radio stations pay annual fees for the license of broadcasting music, which is why stations have to report every song they play (this data is sampled to divvy up royalty payments to labels and artists.)
deffibaugh 16y ago
The number one reason I love Pandora is that it offers an ad free paid version with higher quality. Its dead simple and does exactly what you want it to without tacked on social networking.
Sniffnoy 16y ago
Oh, I read "files" as a noun there, as in they were going to let people see inside their database of music-quantification. Was very disappointed on learning what it actually meant...
longarm 16y ago
I wonder if they pay lower royalties on live music and that's why they try to jam it into my playlists all the time. In the last year or so I've felt there like there was something just a little off about it some of the song choices and I'd be curious to know if different artists/labels/genres command different rates and if that impacts the song choice.
leon_ 16y ago
If you're not from the US and want to use pandora, I've got some scripts bundled together to get it running over TOR (it's not as slow as it sounds because only the control interface is using TOR and the stream goes through your 'normal' internet connection): https://github.com/jsz/PanTORa https://github.com/jsz/PanTORa

101 points by pitdesi 16y ago

You know something's screwed up when you can buy a company's stock, but not their product. Canadian music and copyright laws are terrible.

pitdesi 16y ago

And the IPO frenzy starts heating up... like it's '97

davidu 16y ago
Not really. Go find a company from '97 that had $70 million in revenue and was breaking even.* If there is a company, it might have had absurdly inflated ad-based revenue when CPMs were like $30.
- pitdesi 16y ago
  ok, maybe more like 95... Netscape had $80mil in revenues and was close to break even (made a profit in '96) http://www.secinfo.com/dRqWm.8Ae8.htm#49o5 http://www.secinfo.com/dRqWm.8Ae8.htm#49o5
  - davidu 16y ago
    Netscape absolutely deserved to go public based on any metric. The future could not be predicted based on their inaction and Microsoft's dominance.

zacharycohn 16y ago

I don't know much about the market/strategy behind IPOs. Is it a good idea to IPO if you just lost ~$325k? I assume they have intelligent reasons behind the IPO - can someone explain the rationale?

yumraj 16y ago
It's not just about profitability, valuation takes future cash flow into account. So, if the market thinks that Pandora's cash flow would increase without much risk, and they do have healthy revenue, they can have a successful IPO. Think about Tesla, which is much more in red but had a great IPO.
adamt 16y ago
The article states they lost $328k on revenues of $90M for the first 9 months of the year. The $328k loss is not really material (either as a proportion of revenue, or absolutely versus the size of the business) they are essentially breaking even. If you look at the numbers (image in the article) The $328k loss also includes some exceptional charges, they made an operating profit of $1.15M in the period. Their revenues in the same 9 months of last year were $31m, so they have tripled their revenues year on year. Over the same period their costs less than doubled. If one were to extrapolate this growth rate forward by just one year (a bit crude, but makes a point), they'd end up with $270m revenue, on $170m costs so $100m profit. They are now breaking even - which is a simple metric of a sane business/proven model, doing significant revenue and growing very quickly. So now they are in an attractive state for the markets. In terms of strategy, Techcrunch shows their first VC round was back in 2000, with significant further rounds in 2004 and 2005. One could safely assuming the overriding factor is that VCs will be looking for an exit. An IPO will also provide the company with significant injection of operating cash, along with liquid paper (stock) with which they can use in further acquisitions
- rradu 16y ago
  Still seems weird seeing a company that's not even profitable yet go public. I don't expect the initial demand for their stock will be that high, despite the growth.
  - jonknee 16y ago
    Plenty of companies go public before becoming profitable, it's a way to raise capital. Tesla Motors comes to mind for a recent example. Same for Clear.

brikmaster 16y ago

It allows their investors to sell stock and get their money out.

davidu 16y ago

This company is almost entirely investor owned. Geez. It's been saved from the brink of death so many times, the actual employees and founders really aren't going to get a tremendous windfall for their efforts.

robryan 16y ago
At least they will get something which is better than if they didn't let investors save it. A quick look seemed to reveal they had pretty high salaries though so it's not all bad.

troymc 16y ago

I can't get Pandora in Canada (unless I use a proxy), so I don't really know how it works. I was struck when I read: "About 86 percent of Pandora’s revenues ($78 million) comes from advertising, the rest ($12 million) comes from subscriptions." which made me think, wow, Pandora is kind of like a newspaper, magazine, or cable TV network!

longarm 16y ago
Pandora commands higher than average ad rates. Remnant (which is bargin basement inventory) is somewhere around $5cpm and I don't think they sell to networks for display to keep demand high. It's actually hard to get inventory there unless you are a premium buyer. For those of you who don't know or care much about online ads, all this basically means is that almost every other publisher (Huffpost, whatever) would kill to Pandora's rates. The fact that they aren't incredibly profitable shows how tough the business is. God knows how Grooveshark makes any money.
leon_ 16y ago
Yeah, can't get it here in Europe too. Thus I've thrown something together to get it running over TOR. Luckily only the control interface checks if your IP is from the US. The traffic heavy so streaming doesn't have to go over TOR. https://github.com/jsz/PanTORa https://github.com/jsz/PanTORa

johnwatson11218 16y ago

I think Pandora is a good company to buy because they have superior technology. I pay the $30 or so for the annual subscription to get unlimited listening and no ads. I have tried other services like this but I always come back to Pandora. I have read several articles that talk about the techniques they use to define a "station" and I think it is pretty solid. It is my understanding that they have hired musicians to listen to each of the songs they stream then rate each one according to dozens of factors. The factors include things like "acoustic guitar", "strong melody", "high studio production values", "gritty vocals", etc etc. Then they are able to do some kind of cluster analysis on that dataset. So that if you put in "Stone Roses" you hear music from that band but then others that have a similar sound. I find about 2 or 3 new bands that I really like every week. I have actually started buying CDs again.

sp332 16y ago
They actually train their people in music theory, because they pull the music apart and list a few hundred features. Depending on the genre, there are different lists of musical features that might differentiate the songs. This is what makes Pandora unique from Last.fm, or Ping, or other "social" music discovery sites. Instead of recommending songs according who likes them, it learns what kind of music you like. It looks across genres and artists to the actual musical features of each song.
- johnwatson11218 16y ago
  OK, that is good to know. I had talked to somebody about this problem several years ago and I had thought that you could start with some kind of metric space and see which songs were 'close' to each other. The guy I was talking to seemed to view the problem as a kind of Bayes Theorem problem. The example being that if you had some obscure Beatles album then you most likely had 'Abbey Road' but the inverse probably wasn't true and that is where a software service could step in ... to recommend the obscure album as one you would probably like. One thing that I really like about the service is finding artists that seem to lead to lots of other great songs. It isn't always who I think it is. For example on a lark I put in "New Radicals" because I liked one of their songs and I was so impressed with how well that defined a particular sound. When I put in big names like the Beatles or Rolling Stones I don't think I left those stations defined for very long. I wonder is there is some kind of structure to the what Pandora has calculated that could show which bands or songs seem to be most influential.

jdavid 16y ago

I think Pandora will go back into heavy losses if they raise money. I love Pandora as a service, but it's a far cry from being a Netflix. ( a long time paying customer of both ) Pandora's revenue is threatened by so much, RIAA contracts, pirating, advertisings race to zero ( via google ), etc... They know this, and they will need to reinvent themselves to be worth anything. As a result I predict they will blow the 100 million on radically new business methods. Considering the success rate of music companies... I am worried.

aaronblohowiak 16y ago
I hope they spend it on advertising. Their product rocks, i think they just need wider exposure. They also claim exclusive providence to being able to authentically post jobs in the bay area looking for "rock stars" to help out their company ;)
- longarm 16y ago
  That would be a pretty bad sign. I sure as hell wouldn't invest in a company that's going to turn around and spend the money they raise on ads. They should be building a war chest and their biz dev and legal teams to get some leverage on the labels. Regular radio pays $0 of their revenue to labels, Pandora pays $.50 of every $1.
  - aaronblohowiak 16y ago
    Radio stations pay annual fees for the license of broadcasting music, which is why stations have to report every song they play (this data is sampled to divvy up royalty payments to labels and artists.)

deffibaugh 16y ago

The number one reason I love Pandora is that it offers an ad free paid version with higher quality. Its dead simple and does exactly what you want it to without tacked on social networking.

Sniffnoy 16y ago

Oh, I read "files" as a noun there, as in they were going to let people see inside their database of music-quantification. Was very disappointed on learning what it actually meant...

longarm 16y ago

I wonder if they pay lower royalties on live music and that's why they try to jam it into my playlists all the time. In the last year or so I've felt there like there was something just a little off about it some of the song choices and I'd be curious to know if different artists/labels/genres command different rates and if that impacts the song choice.

leon_ 16y ago

If you're not from the US and want to use pandora, I've got some scripts bundled together to get it running over TOR (it's not as slow as it sounds because only the control interface is using TOR and the stream goes through your 'normal' internet connection): https://github.com/jsz/PanTORa https://github.com/jsz/PanTORa