Pandora Stock Offering May Help Identify Tech Bubble
It seems that whatever tech excitement that may have catapulted Pandora higher following its initial public offering on Wednesday has fizzled away into boring old economics.
The online music streaming company stock opened at an impressive $20 per share, shooting up as high as $25 soon after trading began before quickly settling back down below open at $17.42. Pandora’s respectable $20 initial offering was much higher than expected in the months following the company’s announcement that it would begin trading on the stock exchange in February. Prices were initially set a paltry $9 per share, but increased last week to $10 to $12 each. The company priced its initial public offering at $16 per share the day before trading began.
As has been the case with other tech stocks, impressive early gains made by Pandora were quickly followed by decline to levels not far from opening prices. By the time of print, only one day after release, Pandora’s stocks were trading well below opening value at around $14.50 per share.
The release of Pandora stock into the market closely follows professional social marketing website LinkedIn’s initial public offering in May. Like Pandora, LinkedIn enjoyed considerable gains in early trading. Their stocks began with at an initial price of $45 per share before opening at a sky-high $86, closing the first day up 80% and wowing investors. Since then, however, prices have cooled considerably, falling to their current levels around $70 each.
Understanding what these numbers mean for the tech industry as a whole is a little more difficult. Rumblings have been growing pretty loud from technology news agencies and financial reporters alike about the possibility of a new tech bubble. The rapid incline of LinkedIn followed by gradual decline might be pointed to as evidence of such a bubble. Of course, others will simply brush such worries aside, labeling them as usual market fluctuations. Yet inflated valuations from Groupon and Twitter, both of which may be in the tens of billions, suggest that things may already be getting out of control.
What is clear, however, is that stock offerings are not a sure way for online companies to raise their valuation quickly. While larger, more powerful web-based companies have done extremely well in past years through such offerings, these latest releases show that such constant growth can no longer be taken for granted.
These events all ultimately build up to a hotly anticipated public release of Facebook stock… eventually. While the company has been expected to begin selling to the public sometime around April of 2012, when they will be forced to release financial information that makes an IPO more appealing, confusing showings from tech companies like Pandora may cause them to rethink any such plans. Additionally, new legislation may push back Facebook’s deadline to release those financial numbers, easing any pressure to preemptively offer public stock.
As more web companies enter the ring the viability of many tech companies may become more clear. If a bubble has indeed begun to grow, the attitudes of other companies will likely reflect the confidence of Pandora and Groupon in their public trading habits.
Advertisement
Interesting read. I didn’t know those companies went public. It does make sense. It could be called the natural progression. Truth is I need to learn a more about the stock market.