Pandora, the online radio service that can magically gauge your music taste based on an algorithm, filed papers to raise as much as $100 million in an IPO. The company has more than 80 million listeners (up 300% from the end of 2009), more than 50% share of listening time of all music listened to on internet radio, and its listeners created more than 1.4 billion stations. Sounds good so far.
Most music listeners I've met love Pandora and have found some awesome music through it, but while there is an attractive upside, its operating profit model is extremely weak and there are lots of substantial risks and unknowns for those looking to invest.
Risks
The company lists the following risks in its prospectus:
Since our inception in 2000, we have incurred significant net operating losses and as of October 31, 2010, we had an accumulated deficit of $83.9 million. A key element of our strategy is to aggressively increase the number of listeners and listener hours to increase our market penetration. However, as our number of listener hours increases, the royalties we pay for content acquisition also increase. We have not in the past generated, and may not in the future generate, sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses. If we cannot successfully earn revenue at a rate that exceeds the operational costs associated with increased listener hours, we may not be able to achieve or sustain profitability. In addition, we expect
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