Pandora Media Inc made a splashy public debut as investors shrugged off years of financial losses by the online radio company for the chance to get in on the red-hot market for startups.

Shares of Pandora, the latest web company to test the public markets, soared as much as 48 percent on Wednesday before handing back those gains to finish 9 percent higher.

Although Pandora was the second biggest gainer on the New York Stock Exchange, the company could not avoid criticism by those who raised doubts about its business model and warned the market could be bound for another bubble.

One major concern about Pandora: The bigger its audience gets, the more it must pay to record labels, hurting its chances of turning a profit.

Chief Executive Joseph Kennedy said there was no timeline to turn a profit, though a larger audience should attract advertising dollars.

We are tremendously focused on providing a great listener experience and that what has gotten us to this point, Kennedy said in an interview.

The stock closed the day at $17.42, above its IPO price of $16 a share, bucking the broader market sell-off and implying a total value of $2.8 billion for the company.

Pandora is trading at nearly 20 times its 2010 sales, far above the market values of Google Inc, Amazon.com Inc and Sirius XM Radio Inc.

If investors are investing in the hope that maybe Pandora can figure it out, that's not an analytical framework to make an investment, said Morningstar analyst Rick Summer, who has a $6 price target on the stock.

The reason we're so bearish is that Pandora has no competitive advantages and the valuation is crazy, Summer said.

Online start-ups have stoked the interest of investors who are anticipating the IPOs of Facebook and Twitter even as big companies like Ally Financial are having trouble going public.

But where their profit will come from remains to be seen. Neither LinkedIn Corp, the professional networking site that went public in May, nor Groupon, which filed to go public earlier this month, are currently profitable.

It's too early to start throwing around the b-word, said GreenCrest Capital analyst Anupam Palit, referring to a bubble. In 12 to 18 months when we have more follow-ons, like IPOs from Groupon, Zynga and Facebook, then we'll know more.

Pandora, which has been around for a decade, runs a service that allows listeners to create music playlists. It has about 90 million users.

Pandora is incredibly enticing at a surface level because millions and millions of people are using it, said Lazard Capital Markets analyst Barton Crockett. I think there is a love factor that is getting investors interested in it.

Kennedy said Pandora planned to keep advertising as its main source of revenue -- similar to traditional radio -- even thought it offers a premium subscription service.

We will never do anything like the 12 or 13 minutes of advertising that characterize broadcasting radio today, he said.

So far, the cost of maintaining the service is outpacing its revenue growth.

As each user listens to it more and more, Pandora gets charged more and more, said Morningstar's Summer. You don't get any operating leverage in that model.

Pandora is up against traditional radio companies, satellite radio provider Sirius XM, music services such as Rhapsody, and offerings from Apple Inc, Google and Amazon.

Founded in January 2000, as TheSavageBeast.com, the company changed its name to Pandora Media five years later. It racked up net operating losses of $92.1 million over the 10 years that ended this past April, according to a government filing.

On Tuesday, the company raised $235 million from its IPO. It had increased its target price range to between $10 and $12 late last week.

(Reporting by Jennifer Saba and Liana Baker; editing by John Wallace, Chelsea Emery and Lisa Von Ahn)

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