Based in Oakland, California Pandora (proposed P) is scheduling a $109 million IPO with a market capitalization of $1.76 billion at the price range mid-point of $11 for Wednesday June 15, 2011. The new price range mid-point is up 38% from the previous price range mid-point of $8.

P is selling 9% in the IPO before the green shoe option. Linkedin sold 8% so Pandora is in the same range of limited float.

FINANCIAL SUMMARY

Pandora’s sales were up 137% in the March 2011 quarter versus the March 2010 quarter. Losses increased to $7mm from $3mm. The biggest expense item, content acquisition costs, was respectively 57% and 58%

VALUATION

At the increased price point mid-range of $11 Pandora is valued at 8.6 times annualized revenue for the March 2011 quarter and 25 times book value.

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing April 2011 qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Pandora (P)	$1,749	8.6	-62	25.5	25.6	9%

CONCLUSION

. Pandora is expected to have an IPO pop the first day, most likely driven in part by very enthusiastic listeners.

. However, Pandora says it has a 50% market share of the Internet radio market. If they can’t make money with a 50% market share, will they ever make significant money? Also, content acquisition costs seem to be creeping up and that’s a uncontrollable expense for Pandora.

. We expect Pandora to trade up in the initial after market and then trade down,

much like Linkedin (LNKD) which IPO’ed at $45, started trading at $82, climbed to $122.70 the first day. Linedin is now down 40% from the high to $72.

Or Renren (RENN) which IPO’d at $14, hit a first day high of $24. Renren is now down 62% from the high to $9.

. Cloud competition: users also have the option of uploading their favorite sound files to Apple’s Icloud, Google Music or Amazon’s music cloud, all of which provide a different and some would say better listening experience because you can choose your sound files.

It may be true hat Pandora has 50% of the Internet radio market, but that’s a limited market definition. The broader market includes cloud competition, Sirius Radio (SIRI), iTunes, mp3 files and so on.

Quarterly results	Jan 2010	April 2010	July 2010	Oct 2010	Jan 2011	April 2011
Revenues ($mm)	$24	$22	$31	$38	$48	$51
Content acquisition % of rev	44%	58%	48%	48%	50%	57%
Net income (loss)	$2	-$3	$2	$1	-$1	-$7
Net income (loss) %	8%	-14%	5%	3%	-3%	-13%

BUSINESS

Pandora is the leader in internet radio in the United States, offering a personalized experience for each of its listeners.

Pandora has more than a 50% share of all internet radio listening time among the top 20 stations and networks in the United States, according to a November 2010 report by Ando Media, an audience measurement and ads management firm.

INTELLECTUAL PROPERTY

One issued patent and two patent applications pending in the United States

EMPLOYEES

As of April 30, 2011, P had 359 employee

USE OF PROCEEDS

Shareholders expect to sell 6 million shares (as of June 10) up from 5 million shares. P intends to sell 8.67 million shares to net $58 million, allocated to pay dividends on preferred stock.

55% of proceeds to P ($32mm) is allocated to pay accrued dividends on preferred stock.

Pandora (P)	P, C, 6.5					Post IPO shares: 160mm
Internet radio		Jan 31 fisal		April 3 mos '10	April 3 mos '11
Oakland, CA	2008	2009	2010	2010	2011	IPO Mkt
Revenues ($mm)	$19	$55	$138	$22	$51	Cap (mm)
Content acquisition % of rev	84%	60%	50%	59%	57%	$1,760
Net income (loss)	-$28	-$17.00	-$2	-$3	-$7	@$11
Net income (loss) %	-147%	-31%	-1%	-14%	-13%
Listner hours, billions	0.9	1.8	3.8	0.7	1.6
Registered users, mm	22	45	82	53	94
Active users	7	16	29	18	34
Quarterly results	Jan 2010	April 2010	July 2010	Oct 2010	Jan 2011	April 2011
Revenues ($mm)	$24	$22	$31	$38	$48	$51
Content acquisition % of rev	44%	58%	48%	48%	50%	57%
Net income (loss)	$2	-$3	$2	$1	-$1	-$7
Net income (loss) %	8%	-14%	5%	3%	-3%	-13%
COMPARE
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing April 2011 qtr	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Pandora (P)	$1,760	8.6	-63	25.5	25.6	9%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	1	1.5	6.5