Pandora IPO story updated with closing share price information.

NEW YORK (

TheStreet

) -- Shares of

Pandora Media

(P)

surged more than 63% in their market debut Wednesday, as strong investor interest in the social media sector continues.

But while the stock hit $26 at one point during morning trading -- which valued the company at more than $4 billion -- shares later fell to close at $17.42. The company raised $235 million in its IPO Tuesday, selling shares at $16 a piece.

Last week Pandora

increased its price to between $10 and $12

, up from its prior range of $7 to $9 a share.

Pandora's IPO comes in the footsteps of other recent Internet IPO successes including

LinkedIn

(LNKD)

, which

saw shares more than double

in its first day of trading, and

Yandex

(YNDX) - Get Yandex NV Class A Report

, the Russian Internet search shop that

saw its stock jump more than 40%

on its U.S. trading debut.

Pandora IPO Pressures Sirius Shares

While Pandora has posted significant growth and a rapidly expanding user base -- it comprises about half the Internet radio market --

it faces losses

and

mounting competition

from tech powerhouses like

Apple

(AAPL) - Get Apple Inc. (AAPL) Report

,

Google

(GOOG) - Get Alphabet Inc. Class C Report

and

Amazon

(AMZN) - Get Amazon.com, Inc. Report

, who are also breaking into the online music space.

TheStreet Recommends

Pandora lets listeners create personalized radio stations based on their tastes. Listeners can then provide feedback by selecting "thumbs up" or "thumbs down" to influence the types of songs that are played going forward.

The service is available for free through the Web, tablets and smartphones and is also integrated into the sound systems of several car makers. The company's iPad app is the most downloaded free app in the history of Apple's App Store and its iPhone app is the second-most popular, following

Facebook

.

Pandora generates about 87% of its revenue from display and audio ads. However, users can buy a subscription to the service to bypass ads.

Founded in 2000 by Tim Westergren,

Pandora has suffered several near-death experiences

since its inception including impacts of the dot-com bust, near-bankruptcy and lawsuits from the recording industry.

But despite the company's popularity -- it boasts more than 90 million users, up from 80 million in January -- it has never turned a profit.

"They control 50% of the Internet radio market, but they can't make money on a continuing, sustaining basis," Francis Gaskins, president of IPO Desktop,

told TheStreet.

"What will happen with Pandora is it will open

well, but it won't make any money in the after market -- there will be a lot of people coming in based on sheer enthusiasm."

Skeptics predict that Pandora's price will follow that of LinkedIn and Chinese social network

Renren

(RENN) - Get Renren Inc. Sponsored ADR Class A Report

, whose shares are down about 20% and 60% respectively since their recent public debut.

Pandora's revenue climbed to $137.7 in fiscal year 2011 from $55.1 million during the prior year. Its net loss narrowed from $16.8 million to $1.8 million over the same period.

Pandora's giant-sized competition includes a new initiative from Apple, which last week

unveiled its iCloud service

that will let users stream their music across multiple devices, rather than having to synchronize gadgets.

And in March, Amazon

introduced its Cloud Drive service

, an Internet service that lets customers store music and play it on their smartphones or computers.

Google has

also announced a similar service

called Music Beta.

In terms of pure-play Internet competitors, start-ups and apps like

Rdio

and

Slacker

offer services very similar to Pandora's.

Another significant problem facing Pandora: the sustainability of its business as its popularity grows.

The company will be forced to increased pay royalty fees to music labels as its user base expands. In addition, as more listeners gravitate to Pandora's mobile app, the company will need to further utilize audio ads which aren't as lucrative as display ads, said Tom Taulli, an independent IPO analyst.

"I'm bullish short term ... Pandora is tapping into some big trends there," he said. "But long term there are some clear issues with sustainability."

--Written by Olivia Oran in New York.

Readers Also Like:

Top Stocks to Buy and Hold Through 2011

Stocks Under $5 at Risk of Bankruptcy