Pandora IPO: What the Analysts Are Saying

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Some are advising potential investors in the online music service to stay away.

Online music service Pandora Media is set to go public, pricing its initial public offering of 14.7 million shares at $16, above the previously targeted $10-$12 target range.

But what do the experts have to say about the IPO?

BTIG analyst Richard Greenfield has suggested that investors stay away. "As consumers we love Pandora," he wrote on Friday. "It is free, incredibly easy-to-use, works across a growing array of platforms in/out-of-home and has a de minimis amount of advertising compared to terrestrial radio."

However, "investing in Pandora is a whole different story," Greenfield said. "While Pandora is creating a large active user base, its reach/frequency continues to pale in comparison to terrestrial radio, as does its profitability." Overall, Pandora's financial outlook did not justify its previous IPO price range, the analyst said.

Jon Merriman, co-founder of Merriman Holdings Inc., echoed that sentiment in an interview with Bloomberg.

"I think the valuation is ludicrous, I think anything with this level of competition ... is very tough to justify given the lack of profitability and the landscape," he said. "I think stock's going to move ... but I would not be buying the opening."

Scott Kessler, head of technology sector equity research at Standard & Poor's, also talked to Bloomberg about the IPO, saying potential investors should be aware of some "issues with Pandora as a business."

"The most obvious is the fact that ... advertising really drives what goes on at the company, and frankly I think what's going to dictate how this company and stock fare over the near and long term," he said. "But the other thing, which is really critical, is think about how many current and potential competitors there are to this company."

He cited terrestrial radio, satellite radio and other Internet radio companies.

Anupam Palit, an analyst with GreenCrest, told the Los Angeles Times that Pandora is a "great company" but faces "several big challenges." For starters, Pandora needs to be able to target its listeners more closely.

"Amazon knows everything you've bought online. Google knows all about your Internet life," he said. "Pandora knows your name, age and what you like to listen to. They need to know a lot more."

He also brought up the advertising issues, saying Pandora's ads needs to evolve from a computer-based to a more mobile-friendly format.

"Most of their users aren't seeing the ads on their mobile devices, which are more often than not sitting inside their pockets," Palit said.