The Internet radio station and online sensation Pandora has released an IPO at $16 per share, giving the company an estimated market value of $2.6 billion.

In December, Pandora’s board estimated that its stock would be worth only $3.14 per share. Their concern was that the company had recently lost over $90 million. Investors, however, thought differently, and were drawn by Pandora’s enormous user base of 94 million and the expansion of Pandora’s service to smart phones and other devices. Furthermore, Pandora is currently available only in the U.S., but there is room for international expansion.

Pandora is custodian of the Music Genome Project, intended to “capture the essence of music at the fundamental level” using almost 400 attributes to describe songs and a complex mathematical algorithm to organize them.” This is used to assist people in finding related music they might like. This music is then used to populate individualized radio stations.

For instance, should a user like the band Wilco (and who doesn’t?), Pandora will give a sample song with attributes such as: “basic rock song structures,” “a subtle use of vocal harmony,” “acoustic rhythm piano,” “mixed acoustic and electric instrumentation,” “major key tonality,” and political lyrics,” among others. Using these attributes, it will then play songs by other, lesser known bands like the Jayhawks or The Minus 5. This provides users an opportunity to expand their musical horizons, while offering exposure to artists who are less frequently played. To learn more about users’ tastes, the site offers them an opportunity to give a “thumbs up” or “thumbs down” to the recommendations.

It works. Last year subscribers listened to 3.8 billion hours of streamed music, doubling the company’s revenues. The excitement over its IPO is the result. Nevertheless, the company warned, “As the volume of music we stream to listeners increases, our content acquisition expense will also increase, regardless of whether we are able to generate more revenue.”

There is excitement over the release of Pandora’s IPO, but there is still concern about its business model. Nevertheless, shares opened this morning at $20, 25 percent higher than yesterday. Investors seem to believe in the company.

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