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***Pandora IPO UPDATE***
As most of you know, we have seen a slew of red hot, tech related IPO‘s in the past few months. In the next few months we could see even more, easpecially if companies like Groupon, Twitter and Facebook come to market. Facebook alone could rise the tide of the entire NASDAQ and provide some cover for lesser internet related IPO’s to suddenly become successful if the mania continues.
However, yesterday we were told a different story. The Oakland based internet radio company Pandora (P:NYSE) opened up at a large premium after being priced at $16. Now at the time of this entry, the shares have fallen below the IPO price, and that is generally not a good sign going forward. Chinese internet company Renren (RENN:NASDAQ) has recently been the latest example of a super hot IPO that’s fallen from high’s. Returns for some investors who have bought RenRen are similar to a penny stock trade gone. Shares of RENN are currently below $8.
Now the Pandora IPO might be in a similar situation since the stock price is below $16 for two reasons. Many traders will take a flier on quality IPO in the aftermarket, when shares get close to the offering price. They then set tight stop orders, but once those stops are run, the trade often becomes broken for the short term, and the bloom is off the rose. Other investors who have a longer time horizon all of a sudden become bargain hunters and shy away from broken IPO’s until they become so cheap, that they are almost forced to buy them. In simpler terms, buyers are looking for a deal, this factor is magnified in uncertain markets like we are in presently. At this point it doesn’t look like Pandora is at bargain basement levels yet, especially with their valuation concerns. Remember that the shorts can’t get borrows yet, So being a hero at these levels might unwise.
See original Pandora IPO story below
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Pandora IPO, Buying Opportunity or Not ?
Pandora IPO (P:NYSE) came public today and became the latest internet based company to launch a successful IPO. The internet sector has shown us two incredibly hot deals recently, Yandex (YNDX:NASDAQ) being one and LinkedIn IPO (LNKD:NASDAQ) being the other. Both YNDX and LNKD skyrocketed on the first day of trading, only to fall back in subsequent sessions.Will Pandora lapse as well ? Maybe and here is why.
Market conditions were much more favorable when YNDX and LNKD first traded. The current turmoil we are currently seeing in Europe, could weigh on stocks and especially high beta names like Pandora. There are also the usual valuation concerns regarding this hot Pandora IPO. At today’s current share price, the Oakland based internet radio company. is trading at more than 20x sales.
How soon will the Pandora IPO become profitable?
Now on a growth basis Pandora is very impressive. For the quarter ending in April, Pandora’s revenue grew to 51 million. Pandora also added 12 million new subscribers since January. However, figuring out how to monetize this growth is the million dollar question. During the same time period Pandora lost $9.1 million, and during an interview with CNBC today, CEO Joe Kennedy seemed some what vague, didn’t offer any guidance and wouldn’t predict when Pandora would become profitable.
With these facts in mind, a market reversal to the upside on Thursday could temporarily put Pandora, back in favor, but based on recent IPO trading trends, it’s probably safe to say that the shares could drift lower. Shares of Pandora were priced well above the range today at $16 and traded as high as $26, only to fall back below $19 at the time of this entry. Now there could very well be some traders who come in near the close and buy shares, hoping for positive news from Greece, a good market on Thursday and a gap up in Pandora shares. On the flip side, there are cautious investors who are looking for Pandora to test the issue price of $16 before stepping in.
To me this is just another example of why the sidelines are often better. If Pandora IPO breaks issue price this one could get ugly as other broken IPO’s often do.
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