Pandora Media on Tuesday priced its shares at $16 each for its initial public offering, raising about $235 million for the Oakland-based Internet radio company.

At that price, Pandora would command a market value of $2.56 billion.

That would immediately propel Pandora Media into the ranks of the 80 most valuable public companies in the Bay Area and the 10th most valuable in the East Bay, based on Tuesday's market values for local companies.

"Pandora is a great, great company," said Anupam Palit, an analyst with New York City-based Greencrest Capital, which tracks privately held companies. "But it might not be worth this kind of hype."

Initially, Pandora priced its shares at about $8 each. Last week, the company upped the ante and decided to attempt a pricing in the range of $10 to $12 each. The latest $16 price represents strong demand for the shares.

Palit isn't sure Pandora is worth quite that much per share. Since being founded in 2000 by Tim Westergren, Pandora has lost $92 million and has never turned a profit. Analysts think Pandora would have to be in the black by next year to justify a $16 stock price.

Nevertheless, analysts said that Pandora Media is in good position to dominate the online music sector. The company generates music play lists based on a customer's favorite artists or songs.


Advertisement

"Pandora has a really strong position in this market," said Espen Robak, president of New York City-based Pluris Valuation Advisors. "The real question is whether these valuations are a little inflated right now."

The next big challenge could be posed by companies that have become titans in the tech world.

"A lot of competition is coming into this market," Palit said.

Cupertino-based Apple (AAPL), Mountain View-based Google (GOOG) and Seattle-based Amazon.com are thought to be preparing their own forays into some portions of the online music world.

However, it's unclear how those ventures might affect Pandora.

Several startups are competing directly in Internet radio services. Among them: San Francisco-based Rdio, San Diego-based Slacker and two London-based firms, Spotify and Last.fm.

Pandora has managed to capture a more than 50 percent market share of Internet radio listening time, according to a late 2010 report by Ando Media, an audience measurement firm.

Despite the competition, Pandora's revenues have soared -- and its losses have dwindled -- in its most recent full fiscal year.

For the 2011 fiscal year that ended Jan. 31, Pandora generated $137.8 million in sales and lost $11 million. Sales more than doubled and jumped 150 percent compared to the fiscal 2010, when Pandora lost $24.9 million.

"Pandora has significant revenue and it looks like they could be profitable in 2012 without any major Hail Mary assumptions," Robak said.

Once profits arrive, Pandora could be on a really solid footing.

"If they become profitable, then they are a real company that can survive going forward," Robak said.

Contact George Avalos at 925-977-8477. Follow him at Twitter.com/george_avalos.