IPO ETF Sidesteps Pandora Flop

| About: First Trust (FPX)

An exchange traded fund that invests in initial public offerings won’t feel the effect of Pandora (NYSE: P) falling below its IPO price as investors have soured on the media company following its debut this week.

Pandora shares were pounded for the second straight day on Thursday, dropping 15% in the last hour of trading.

First Trust US IPO Index Fund (NYSEArca: FPX) holds 100 stocks. IPOs are screened and are only able to enter the tracking index on the close of the sixth trading day, according to the ETF’s prospectus. That’s why Pandora didn’t immediately join the ETF.

Pandora shares hit a high of $26 on Wednesday, but investors quickly dumped shares on the the prospects of low profitability, sending share prices below the company’s set offer of $16, reports Olivia Oran for TheStreet. John Fitzgibbon, president of IPO Scoop, believes that companies with strong financials will make it, even with all the hype surrounding potentially new tech IPO launches.

“It’s a classic case of sizzle versus steak,” illustrated Fitzgibbon. “The sizzle came yesterday in the form of insanity.com but the focus has shifted to the company itself — the steak.”

Pandora posted a net loss of $1.8 for the fiscal year of 2010. The company also faces increasing royalty fees as its customer base grows.

Over this year, Pandora will have to contend with the likes of Apple (NASDAQ:AAPL), which has announced its iCloud service that will allow streaming of music over multiple devices, and Amazon (NASDAQ:AMZN), which also launched its Cloud Drive service that allows customers access and store music online.

LinkedIn (NYSE:LNKD) shares doubled in their first day of trading, but have also fallen below the IPO price.

First Trust US IPO Index Fund - (click to enlarge)

Max Chen contributed to this article.