Music to Pandora’s Ears: IPO Prices Above Range, Raises $235M

(Reuters) – Online radio company Pandora Media (NYSE: P) priced shares in its initial public offering above an already raised range on Tuesday, the latest company to take advantage of red-hot valuations for Internet companies.

The venture-backed company priced its shares at $16 each, according to a source familiar with the deal. The company raised $235 million based on 14.7 million shares it planned to sell, according to a government filing.

Late last week, Pandora increased its price target range to $10 to $12 per share.

The company’s shares are expected to begin trading on the New York Stock Exchange on Wednesday under the symbol “P.”

Internet companies such as Pandora, professional networking company LinkedIn (NYSE: LNKD) and online daily deal site Groupon, which filed to go public earlier this month, remain a healthy part of the U.S. new issue market, despite a broader downturn and postponements of other large IPOs like Ally Financial.

While the Oakland, Calif.-based Pandora has yet to turn a profit, it is valued at about $2.5 billion.

LinkedIn and other Internet companies such as China’s Renren (NYSE: RENN) and Russia’s Yandex (Nasdaq: YNDX) have had strong IPOs building on anticipation for potential offerings by Facebook and Twitter.

“All these guys are trading on potential, not on existing earnings,” said Wedbush analyst Michael Pachter. “I think Pandora’s model is going to evolve.”

Pandora runs a service that personalizes the listening experience by recommending songs based on member feedback, allowing members to create their own playlists based on a song, artist or genre.

Users can listen to the service through computers, smartphones and devices that hook into home entertainment centers such as the Roku box. Pandora has also struck up partnerships with auto manufactures including Ford (NYSE: F), General Motors (NYSE: GM) and Mercedes-Benz.

With 90 million registered users in the United States, Pandora makes money mainly from advertising and it has to pay significant royalties for music.

For the three months ending April 30, 2011, Pandora reported revenue of $51 million with a net loss of $6.8 million.

“We don’t believe Pandora has constructed a moat in the face of powerful music labels and an unproven revenue model, particularly versus the competition,” according to a research note from Morningstar.

Pandora is going up against satellite radio provider Sirius XM Radio Inc (Nasdaq: SIRI), music services such as Rhapsody, not to mention the spate of music storage lockers that can be accessed anywhere from the likes of Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Amazon (Nasdaq: AMZN).

Founded in January 2000 as, the company changed its name five years later to Pandora Media.

Underwriters on the IPO were lead by Morgan Stanley, JPMorgan and Citi.

Pandora has raised about $65 million in venture capital since its founding in 2000, according to Thomson Reuters (publisher of peHUB). Following the IPO, The Hearst Corp. and five VC firms own 68.9% of the company, according to Pandora’s most recent S-1 filing with the SEC. None of the VCs sold any of their shares, but Hearst sold 4,367,253 of its 8,734,506 shares, leaving it with a 2.75% stake following the IPO, according to the S-1.

After the offering, Pandora’s five venture backers collectively hold 105.6 million shares worth a total of $169 million at the IPO price of $16 per share.  Pandora’s biggest shareholder is Crosslink Capital (with a post-IPO stake of 21.89%); followed by Walden Venture Capital (17.82%); Greylock Partners (13.43%); Labrador Ventures (8.08%); and GGV Capital (4.92%), according to the S-1.

–By Jennifer Saba, Reuters

(Reporting by Jennifer Saba; Editing by Bernard Orr, Phil Berlowitz)

Additional reporting by Lawrence Aragon, peHUB