Is Pandora Managing By Press Release?

If you recall the Dot Bomb Bubble, you’ll remember what sometimes happens to newly-public companies.  It’s the press release syndrome.  Rather than working on making their core business profitable, they use their public stock “currency” to start buying other companies that have some vague connection to their business.

These acquisitions deflect attention away from “disappointing” revenue numbers and push out the day of judgement for gullible analysts–don’t judge us yet, we haven’t yet integrated companies X, Y and Z that we acquired with the stockholders’ money.  And we’re still sitting on a pile of cash from our initial public offering and follow on offering to cover our burn rate.

That cash will cover luxurious offices, preferably a lot of them.  You know, like this:


or this


Or this


And then there’s Atlanta, Santa Monica, Dallas and Detroit.  That’s a whole lotta cash burn.

You have to ask yourself–what’s the point here?  What’s the exit strategy?  And why would a stock that behaves like this produce an acqusition strategy?

Pandora Stock Drop

There will come an inflection point where the insiders at Pandora will have extracted as much wealth for themselves as they can, the burn rate will project that the company will be out of cash at some point in the not too distant future, and cash acquisitions will hasten that depletion.  (“The purchase price is $75 million in cash, subject to certain purchase price adjustments.”  Rdio is no fool–they could have taken all stock or a stock/cash mix–but they said show me the money.  It says something about how a strategic feels about Pandora’s future.)

But–the cash on hand from stock offerings could be a key element in attracting a buyer for the ultimate exit.  Now remember–if a company has never made a profit, that cash on hand from the sale of stock is arguably the stockholders’ money.  And instead of using the cash as bait to attract a buyer, there is a pretty strong argument that the cash should be returned to the stockholder from whom it came.

When you see that stock price take its first sharp turn downward, the desperation in the board room increases as executives see their options sink beneath the waves.  That’s when companies like Pandora start buying companies to deflect attention away from the fact that they can’t seem to execute on the hard stuff–like making their core business work, notwithstanding the fact that they have been handed a compulsory license at a below-market rate.

I don’t know that this “management by walking around press releases” is happening at Pandora, but would you be shocked if it were?