I'm sure it will be different this time
American music sharing service Pandora has been valued at £1.6 billion, The Guardian reports:
The company, which will start trading on the New York Stock Exchange on Wednesday, raised $235m on Tuesday, selling 14.7m shares at $16 according to a government filing.
Late last week Pandora increased its original price range of $7-$9 per share for its IPO to $10-$12 – the latest sign of a company looking to take advantage of the investor enthusiasm for internet companies.
The pricing of the loss-making Pandora equates to 19 times the $137m in revenue the company made last year and values it at about $2.6bn. Pandora reported revenue of $51m, with a net loss of $6.8m in the three months to the end of April.
19 times the revenue of a company that has yet to break even.
Richard Greenfield, an analyst at BTIG, has warned that such competition makes Pandora a risk for investors.
"As consumers we love Pandora," he said in an analyst's note. "[However] investing in Pandora is a whole different story. While Pandora is creating a large active user base, its reach/frequency continues to pale in comparison to terrestrial radio, as does its profitability. Put simply, the revenue/earnings leverage from growing users/usage is simply not enough to scale earnings relative to the IPO's proposed valuation."
Which is a long way of saying 'have you people lost your minds?' They have. All people can see are the dollar signs. I'm reading about railway speculation in 1840s right now for a new book, and the investors back then had the same mix of greed, stupidity and magical thinking on display here. They were buying up pretty much anything that had 'railway' in its name, unable to find where this railway was let alone what it would carry and its expectation on return. It's no different than 'Pet food over the internet!' or valuing FaceBook at £100 fickin BILLION dollars.
The housing bubble collapsed in 2007, before that the internet bubble in 2000, and now social networking sites are being valued in the billions. I'm sure this will work out fine.
