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No Profits, No Problem for This Week's IPOs

Stocks in this article: SIRI RENN LNKD

Updated to include Pandora's IPO pricing information.

NEW YORK ( TheStreet) -- If Wall Street were to draft an ad looking for new companies to take public it would likely include the line -- No profits necessary.

Pandora Media (P) is a great example as the company is losing money even as its revenues increase. The leading name in Internet radio is seeing heavy demand for its IPO, which priced at $16 -- higher than both of the previously expected price ranges of $10-$12 and $7-$9.

On a positive note, in its latest amended S-1 filing with the Securities and Exchange Commission, Pandora said revenue more than doubled in the quarter ended on April 30 to $51 million from $21.6 million in the same period a year earlier. Unfortunately, that hasn't translated to earnings as losses swelled to $6.8 million in the April-ended quarter from $3 million last year. Including stock and dividend awards, the latest loss equaled $9.1 million.

Pandora claims to own 50% of the Internet radio market, reporting that it had more than 90 million registered users as of April, and its basic service is free to use, unlike Sirius XM Radio (SIRI), which promised big subscriber growth back in the day but has been drowning in the cost to get those subscribers.

Increased music acquisition costs are a bugaboo for Pandora, and this is in some ways an uncontrollable expense. Another big drain may be improving its bookkeeping as Pandora has been told by its accountants that there are weaknesses in its internal controls.

Pandora's response was: "We are just beginning the costly and challenging process of compiling the system and processing documentation needed to comply with such requirements," which is surprising given the original S-1 was filed back in February. It's fair to ask why Pandora is even going public if the potential for accounting issues is serious enough to merit mention by its auditors. What happens if this problem isn't resolved properly? The shareholders will turn off the noise and sell the stock, so be warned.

Another point to bear in mind is that Pandora's growth is mostly coming from demand for its mobile application. Unfortunately, the ad revenue is lowest in that arena as only 1% of all advertising spending goes to mobile real estate. To date, the company has made no money on mobile advertising, even though 60% of its listeners are on mobile.

Granted, losing money doesn't seem to be a problem for some IPO investors. LinkedIn (LNKD) was up front about its money-making prospects in its filing, but that didn't scare away the traders that pushed the stock to nearly $123 in its debut. Of course, reality has sunk in and the stock has dropped back to the low $70s. Other examples include Renren (RENN), the so-called Facebook of China, which closed Monday down more than 14% at $8, well below its $18 pricing in early May.

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