Shares were trading at $16.20, down $1.22 or 7.0 percent, on the New York Stock Exchange near midday, after briefly dipping to $15.50, or 50 cents below their $16.00 per share IPO price.
Pandora analyst Rich Greenfield says the company is worth just $5.50 a share - or two-thirds less than the IPO price.
Pandora's fundamental problem is that active users and listening hours are growing rapidly, but those listener hours have fixed (and annually escalating) royalty costs per streaming hour (fees to music labels), he said.
Pandora's business model includes music-licensing fees that are fixed, but that also rise each year.
As more and more use of the service goes mobile, and away for the desktop, the company is facing lower CPMs for advertising, because audio-only ads are not as high a rate as the display ads the company can get on the desktop, he explained.
Greenfield also notes that the company is a survivor in Internet radio, but expressed concerns over the growing number of competitors emerging, namely Spotify and Turntabe.fm.
The analysts projects $5.50 for Pandora's stock.
On Wednesday Pandora shares surged 48 percent in its IPO, but then reversed course and closed at $17.42, not far above their IPO price.
In our estimation, Pandora is just not an attractive way to play. What's their competitive advantage? They don't have one, said Morningstar analyst Rick Summer, adding that he expects shares to tumble to $6.00.