With 80 Million Users, Pandora Files To Go Public
Music streaming service Pandora has filed to go public. It could end up raising as much as $100 million. According to its S1 SEC form, for the first nine months of 2010 it lost $328,000 on revenues of $77 million.
Context & Ripple Effects
The filing caps a two-year turnaround: Pandora went from near-death to profitability within a year under CEO Tim Westergren by September 2009, and by January 2011 its iOS app was the second most downloaded of all time, with streams already reaching car dashboards through smartphone integration. The S1 now puts numbers on that scale — a loss of just $328,000 on $77 million of revenue for the first nine months of 2010, essentially breakeven at an 80-million-user base.
First-order effects
- Pandora's finances become public record for the first time, forcing the company to disclose how thin its margins are against music-licensing costs that scale with every hour streamed.
- Early investors and executives see a path to liquidity on a raise of up to $100 million, and Silicon Alley Insider's same-day coverage of 'who will make millions' signals the insider-stakes breakdown is itself the story's hook.
Second-order effects
- A registered Pandora stock gives institutional money an alternative to the hot secondary market in private shares — the very market the SEC was reportedly probing in late 2010 over trades in Facebook, LinkedIn, Twitter and Zynga.
- Rival subscription and radio services lose the ability to claim scale parity quietly; Pandora's user count and near-breakeven P&L become the public benchmark every competing music service gets measured against.
Third-order effects
- If Pandora prices well, it becomes the template case that ad-supported freemium consumer internet companies — a model it has been cited alongside Dropbox, Evernote, Automattic and Mailchimp for — can reach the public markets rather than sell, encouraging a broader wave of late-stage consumer web IPOs.
- Public-market scrutiny will force the whole licensed-streaming category to defend its unit economics quarterly, shifting the debate from user growth to whether royalty structures leave room for durable profit.
The trend: Freemium consumer internet companies that survived the last downturn on advertising are using 2011's reopened IPO window to prove the model at public-company scale.