Business Matters: Three Things to Watch for in Pandora's Q2 Earnings Report
Business Matters: Three Things to Watch for in Pandora's Q2 Earnings Report

Pandora's IPO has brought new expectations for both the company and digital music in general. There has been chatter about what its IPO means to digital music, how its product will change and how quickly it will tackle International expansion. Will the company launch an on-demand service to complement its radio service? Will it take another stab at Europe? Does its IPO signal the arrival of a golden age for digital music?

So what should you expect from the company following its IPO? Here are five things you should not expect to see any time soon:

1. A rebound. The market's true sentiment arrived after the initial rush of enthusiasm. Pandora's market cap had fallen to $2.12 Friday morning, down from a high of $4.2 billion on the opening day of trading Wednesday. The $12.84 share price is well above the $5.50 to $7.50 targets set by some analysts. Now that the market has greater understanding of the company's financial structure (hint: it's not the same as LinkedIn or other Internet stocks) it seems very unlikely shares will surpass $20 any time soon.

2. A halo effect. Pandora's IPO won't matter much for competing music services. Sure, Spotify just landed a $100 million of funding at a $1 billion valuation. But on-demand music is an entirely different beast with a different growth curve and more challenging licensing environment (Pandora operates on a statutory license that does not require direct negotiations with rights holders). And Spotify has been able to create its own momentum. However, Slacker and other Internet radio services may get a slight boost as Pandora sheds light on their corner of the market.

3. On-demand aspirations. Pandora is a radio product and will stay a radio product. As CEO Joe Kennedy explained to MediaMemo, it doesn't want to incorporate on-demand features like those of Spotify. "We'd rather be best in the world at one thing that's a great big piece of the market than be less-than-best in the world at several things."

4. A wave of digital music IPOs. Before Pandora's IPO this week, the last digital music IPO was by Digital Music Group in February 2006. There simply aren't many digital music companies in a position to tap into the public markets for cash. A company would need to have sizable revenue ($100 million annually would put it in contention), category leadership and solid growth potential.

5. Quick international expansion. Pandora would love to expand into Europe - its executives have said so - but confusing and costly licensing issues stand in its way. Instead of looking immediately overseas, Pandora will continue to focus on the potential within its home country. After all, one big part of the company's growth is something Americans love more than Europeans: automobiles.