Pandora Stock Falls After Analyst Posts 'Sell' Rating

Pandora's Tim Westergren

What a difference a day makes. Just 24 hours after PANDORA raised almost $235 million on the first day of its IPO, its stock price dropped as a WALL STREET analysis tagged a "sell" rating on it and suggested a target price of $5.50 a share. PANDORA ended the day at $13.26 and had dropped to $12 and change in after-hours trading.

This prompted headlines such as "Show's over: PANDORA skids in second day of trading," "PANDORA's IPO debacle" and "PANDORA shares plunge; IPO investors suffer losses."

There's an unspoken sense of decorum on Wall Street around 'crapping on someone else's deal.' And pasting a SELL on a company ... is very much crapping on someone else's deal,' Today, an analyst at BTIG shouted it from the rooftops

"PANDORA’s stock hit absolute free-fall territory in the last hour or so of trading, perhaps timed to a bearish piece of research from BTIG analyst RICH GREENFIELD," the WALL STREET JOURNAL reports. The reasons for GREENFIELD's bearish outlook: 1) The exorbitant royalties PANDORA has to pay; 2) the more people who listen to PANDORA on mobile phones, the less who listen on computer, which would force ad rates to go down; and 3) increased competition from the likes of APPLE, GOOGLE and AMAZON, among others.

"There's also an unspoken sense of decorum on WALL STREET around 'crapping on someone else's deal.' And pasting a SELL on a company that went public yesterday is very much crapping on someone else's deal,' BUSINESSINSIDER reports. "Today, RICHARD GREENFIELD, an analyst at BTIG, shouted it from the rooftops.

"A few hours later, PANDORA is down 20% -- in the $14s. Anyone who bought PANDORA yesterday at $17 or above has lost money. The company and its underwriters and its IPO buyers are probably furious. There are presumably little voodoo dolls of GREENFIELD all over traders' desks that are being stabbed with pins and needles ... But everyone who doesn't have the misfortune of owning PANDORA should salute GREENFIELD's cojones and tell him a nice big 'thank you!'

"RICHARD GREENFIELD thinks PANDORA will trade down to $5.50. That should make anyone who is considering buying PANDORA at $14 (or higher) think twice. Importantly, it should not necessarily dissuade anyone from buying PANDORA at $14. RICHARD GREENFIELD is only one person, no one knows what PANDORA is worth, and every investor needs to make their own decisions."

Pandora Counters The Pessimism

Seeming to anticipate the blowback, PANDORA honcho TIM WESTERGREN countered those claims in an interview with the CHICAGO TRIBUNE. Dismissing the notion of PANDORA being a tech "bubble" stock a la the dot-com boom, he asserted that PANDORA has "a clear road to healthy profitability for PANDORA -- all it has to do is add one commercial unit per hour each year (it's running about four 20-second commercials per hour, a tiny fraction of that on broadcast radio), increase the (cost per minute) that advertisers are paying slightly each year and keep its other costs reasonably in line. If they can do that for three or four more years, it's easily a $70 stock."

Concerning analyst concerns about onerous royalties, "I think those analysts were misguided:," WESTERGREN  said. "Almost all businesses have some costs that go up proportionally with usage ... It's true that PANDORA's music royalty costs are extremely high compared to what AM/FM and satellite radio have to pay. Nonetheless, PANDORA has shown a clear ability to sell advertising that covers those costs, their fixed costs and (generate) a profit -- and it's still just the early days of them of building an ad sales effort. Yes, PANDORA's royalty costs per listener-hour are going to up 10% per year at least through 2015, but their advertising and subscription revenues per listener-hour, I believe, can be grown 20 or 30% per year."

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