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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 IP

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.
    - dereg 16y ago
      Exactly. The entire purpose of opening your company up to the public is so that you can raise more money than you would otherwise get privately. Yes, the shares would probably be discounted for lack of profitability, but perhaps the timing is right for them. I don't know.
    - rradu 16y ago
      Tesla was nowhere near profitability when they went public. Pandora just has to wait a few more quarters before getting access to a natural flow of cash. That's what I found strange.
      - adamt 16y ago
        Their VCs from 2000, 04 and 05 will all be hungry for an exit.
- sahaj 16y ago
  care to take a guess on the opening day market cap? i'm thinking 400-500M.

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.
  - dereg 16y ago
    Exactly. The entire purpose of opening your company up to the public is so that you can raise more money than you would otherwise get privately. Yes, the shares would probably be discounted for lack of profitability, but perhaps the timing is right for them. I don't know.
  - rradu 16y ago
    Tesla was nowhere near profitability when they went public. Pandora just has to wait a few more quarters before getting access to a natural flow of cash. That's what I found strange.
    - adamt 16y ago
      Their VCs from 2000, 04 and 05 will all be hungry for an exit.
sahaj 16y ago
care to take a guess on the opening day market cap? i'm thinking 400-500M.