Pandora Files for IPO to Keep the Music Playing

Internet radio pioneer Pandora announced Friday it was filing for an initial public offering, hoping to raise $100 million through the sale of stock. Though saddled with a deficit, the Oakland-based company has seen incredible growth and has been a bright spot in the digital music industry.

Pandora has reported revenue of $90.1 million for the first nine months of 2010, triple what it made during the same period in 2009. The company’s revenues consist of $77 million from advertising while subscription revenue was $12.2 million.

In the first nine months of last year, the startup posted a loss of $328,000 after losing $18.6 million over the same period the year before. The company is carrying an accumulated deficit of $84 million and said it expects to incur a loss through the end of fiscal 2012, which ends Jan. 31, 2012.

Pandora has been one of the success stories in the Internet music space. The company boasts more than 80 million users and earlier this year, founder Tim Westergren blogged that Pandora doubled its user base in 2010 to 75 million, as it branched out from the iPhone to other consumer electronics devices. The company has also won praise for its Music Genome Project which has analyzed 850,000 songs to date.

The company’s filing said it streamed 3.9 billion hours of music in the fiscal year ended on Jan. 31 It hopes to build future success by improving its advertising, which accounts for 1 minute per hour of streaming compared to 13 minutes per hour by traditional radio networks. The company is also looking to widen distribution to other geographies, explore more content beyond music such as sports, talk and news and grow its sales force.

But the company faces challenges as it seeks to grow. Internet radio is still an emerging business and is reliant on building a user base that listens to more and more music. The company could encounter problems if it fails to increase its user base or has trouble advertising on mobile devices. It must also manage relationships with copyright holders and connected device makers, who could harm the business if they change the terms of licensing deals and partnerships.

The deal will benefit investors Crosslink Capital, Walden Venture Capital, and Greylock Partners. Westergren owns 2.39 percent of the company. The IPO suggests the market for public offerings continues to improve, setting up a strong year despite companies like Facebook, Twitter and Zynga remaining private. LinkedIn filed for an IPO last month while Groupon is reportedly preparing to go public in a blowout offering.

Here’s an interview Om conducted with Tim back in November.


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