Pandora's Stock Price Is Tanking on Day Two

The stock was trading well below the IPO peak of $23.75 on Thursday

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Just over 24-hours old, Pandora stock is falling out of favor with traders. Despite a strong showing on the day of its initial public offering Wednesday, the stock suffered the next morning with shares dipping below the set IPO price of $16 per share on Thursday morning. The stock opened at $20 per share despite some investment analyst anxiety that the yet-unprofitable company wouldn't stand up well to Apple and Google's new cloud music services. The distance between the first day closing price and second day opening looks symptomatic of that anxiety.

Henry Blodget hailed the IPO price as finally correct, after arguing that reports that Morgan Stanley undervalued LinkedIn's opening price and swindled the company out of at least $200 million. According to Blodget's initial analysis of the IPO, the second day dip may be bad news for Pandora but good news for the underwriters:

Yes, ideally, Pandora will remain above the IPO price for a while. This will continue to reward investors who took a chance on it and still hold it--and they will be encouraged to step up to the plate and buy another IPO in the future. It will also encourage investors who are allocated IPO stock to hold onto it instead of blowing out their positions when the stock opens. This goes a long way toward helping the company build a "strong-handed" shareholder base.

But even if Pandora's stock "breaks" the IPO price and then never trades above the IPO price again, the underwriters will have done the right thing by pricing it at $16 last night and having it trade to $18-$25 today. Already, enough Pandora stock has changed hands that every share that was bought on the IPO could have been sold at a better price today, so there's no reason to feel sorry for anyone who loses money from here on in.

It's inevitably kind of sad given all the fanfare from the exciting first day. They even made special Pandora jackets for the traders.

This article is from the archive of our partner The Wire.