JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) Leading Pandora IPO

Pandora Media, the Web-based radio company, has officially filed for an IPO after months of speculation, led by JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS).

Of many of the IPOs recently launched or announced, this one is among the least impressive in our view.

It's not that there isn't a demand for the service, but the company itself says they haven't been able to, and won't in the future be able to, overcome the cost of royalties. Pandora noted they have “not in the past generated and may not in the future generate sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses.”

As far as what they announced they'll do with money from an IPO, that didn't build confidence either. They said of the capital raised from the IPO, which they project as being up to $100 million, about $25 million will be used pay a dividend to investors.

They have no confidence in being able to generate a profit with their business model and they're looking at paying a dividend. That's not good business, however you look at it.

Dividends are to be paid out on legitimately positive outlooks, not simply to award shareholders at the possible expense of the company.

Pandora's business model is flawed, period. If they have a successful IPO, they should take that money and use it to generate revenue streams that are profitable, not to spend it on shareholders in the short term.

Pandora has been growing, now with over 80 million registered users. The problem is if you're losing money from royalties on the music played, the more users you get the more potential losses you incur.

Again, Pandora must change their business model, or at minimum mine other revenue from their 80 million plus users. That shouldn't be that hard, there are a plethora of products or services to could be developed or partnered with others to offer to a customer base of that size.