Pandora shares sink below offer price

Pandora, which made its debut on the New York Stock Exchange on Wednesday at $16 a share, lost 23.88 per cent on Thursday to close at $13.26.

Pandora shares soared in early trading on Wednesday to as high as $26 before closing at $17.42, a gain of 8.9 per cent on the day.

Pandora's IPO was being closely watched for signs of a bubble following IPOs in May by professional social network LinkedIn, which saw its stock price more than double on the first day, and Yandex, Russia's top Internet portal, which also had a strong debut.

Pandora, which is based in Oakland, California, has attracted more than 90 million users in the United States since it was founded in 2000.

But Pandora has yet to turn a profit and some financial analysts are skeptical about the outlook for the company because of its need to pay huge sums for music licenses.

Morningstar analyst Bill Buhr said Pandora's quick rise and fall may make analysts and investors wary.

"The fact that it took them just one day to fall below their offer price puts us on alert for some of the other tech IPOs that are coming down the path," Buhr said.

"And it might create more headwind for them in terms of thinking that you can price the IPO at a very rich valuation," he said.

Among the most highly anticipated upcoming IPOs is that of online daily deals sensation Groupon, which is seeking to raise as much as $750 million.

Like Pandora, Groupon has seen explosive growth but has also been unable to turn it into profit.

The Chicago-based Groupon, which reportedly turned down a $6 billion takeover offer from Google last year, reported a net loss of $102.7 million for the first quarter of 2011 on revenue of $644.7 million.

Buhr said Pandora's quick return to earth has "definitely got our radar up."

"But we're not ready to say that because of what happened to Pandora in one day that necessarily affects Groupon," he said.

"When the dust clears, Pandora was wildly successful with their IPO when you look at the money they raised," he said.

Pandora, which creates personalized radio stations for users based upon their favorite artists or songs, raised $235 million and had a market value of $2.55 billion at its offer price.

Lou Kerner of Wedbush Securities said he was somewhat surprised by the quick drop in Pandora's share price and it could be a sign "underwriters are having an increasingly difficult job of pricing these IPOs."

"At the end of the day, Pandora and Linkedin are offering growth that is highly desirable for investors," Kerner said, although Pandora's quick drop "is going to moderate the enthusiasm."

After Groupon, the most highly awaited IPO would be one by Facebook.

The CNBC business news network reported earlier this week that Facebook was likely to go public in the first quarter of next year with a valuation of over $100 billion.