So Pandora Internet Radio has decided to jump head first into an IPO, meaning that they're offering the sale of stock in the company in an effort to raise $100 million. They've filed an S-1, meaning that the Pandora IPO is on its way and they'll eventually sell shares. So you're in, right?! You LOVE Pandora Radio and what it brings you ... but would buying shares of Pandora stock be a good thing?
I have to ask the same question I asked of Rdio ... is this a sign of strength or a sign of weakness for Pandora? The razor-thin profit margin of the online music streaming and internet radio world means that it's hard for a music streaming service to expand with its own money, thus the need to sell stocks (or find venture capitalist funding) to be able to expand the business. So is a company healthy when 1) it cannot expand the business with its own money and more importantly, 2) why is there so little money of its own for expansion? The internet streaming music model is tough to make money in, just ask Spotify.
The Wall Street Journal estimates that Pandora made $90.1 million in revenue over a nine month period, and paid $45.4 million just for the cost of licensing the music. Start to figure in the cost of running the business, and you realize that there's little left over as actual profit.
Plus, consider this as a Pandora Radio user ... when a company files for an IPO, it's offering stocks for sale as an investment in the company ... and this fundamentally changes the direction of the company. No longer is the #1 interest in satisfying its customers (meaning you), the #1 interest is in providing value to shareholders. This means that users become second-class citizens.
Not that that can be all bad, companies that "get it" realize that satisfying customers is the most important part of satisfying shareholders, because without customers, shareholders have nothing. Companies that treat customers with contempt in favor of shareholders largely hang themselves. Which way will Pandora go? Time will tell ... but Pandora has a pretty good track record so far.