Pandora pops on stock market debut
Pandora offers its expanding services on different mediums.
Kai Ryssdal: This is kind of a tortured segue, but bear with me for a minute. We turn now from Greece the country to Greek mythology. Pandora went public today. It's a streaming music service that does all of its business on the Internet. And we all know how popular Internet IPOs are these days. Even though Pandora has yet to turn a profit, eager investors piled in all the same. Shares had a nice pop -- up as much as 50 percent -- before pulling back at the close.
Our New York bureau chief Heidi Moore examines how tricky it is to get the right price for new shares.
Heidi Moore: Two weeks ago, Pandora's bankers thought it was worth about $7 a share. Last week, they thought it was $10. Today, the company sold its stock for $16. Then investors quickly bid it up $25. All for a company that hasn't even turned a profit.
What is Pandora really worth? As much as any investor is willing to pay.
Peter Kies: It's about supply and demand. You can have great deals that just get lost in the shuffle because it's a bad day in the market. You can have bad companies that get priced because it's so robust.
That's Peter Kies. He's an investment banker with Baird in Milwaukee. Companies hire him to coordinate their stock market trading debuts. He and his team will go on roadshows, and they'll meet about 70 to 100 big investors in one-hour chunks over a few weeks. Here's how he describes those meetings.
Kies: To a certain extent, it's a game of poker.
That's because bankers have to balance what the company wants with what investors want.
Brett Paschke is an investment banker with William Blair in Chicago. He says the ideal demand will result in a price pop of 10 to 15 percent on the first day. That makes the company look popular and it rewards shareholders for the risks they've taken.
Brett Paschke: You're asking institutional investors to invest in a company that has no public track record, versus the 10,000 public stocks they already have an opportunity to invest in.
But, Paschke says, anything more than 15 percent is a waste for the company.
Paschke: What we're trying to do is, in fact, predict the pop. If you have a 50 percent pop on the first day, you probably have priced it too low.
A big pop can also set a company up for disappointment. The stock price of social networking site LinkedIn nearly doubled on its first trading day. Since then, it's lost a fifth of its value. That's why bankers call the process "more of an art than a science."
In New York, I'm Heidi Moore for Marketplace.