I have to say that I admire the chutzpah of the Digital Music Group guys, and their banks FTN Midwest, and I-Bankers Securities. They absolutely jammed that future penny stock company public, raising $33M, and giving them 6 months to build a big enough story that the stock will hold up until the lock-up ends, or whenever they agreed to end it. The next steps will be use the cash to attempt to roll up or aggregate other players in the space such as larger competitors The Orchard, IODA, DRA and Iris. I would expect a flurry of deals in any case, and given that they have raised much more money than their competitors, it will be an interesting year.
As I have been absolutely clear in multiple previous posts, there is no possible rational way to value this company at anything remotely close to the current levels. It is currently worth more than Loudeye, a company in a similar category, but one which generated $7M in revenue last quarter. It's starting to approach the valuation of Napster, a digital music company with over $100M in the bank and a quarterly run rate of $24M. As a comparison, DMGI's revenue was about $235K in Q3 2005. Or another way to look at is that the independent digital music aggregation category is now worth over $1B, if you add up the revenues of the top 5 players, and apply DMGI's valuation metrics to all of them - clearly insane.
My guess would be the vast majority of the shares were sold to retail investors. Given that the Shorts can start descending early next week, I think we'll see the Dogs Come Out. And yes, I'll be personally there with them since there is rarely such an easy way to make money in a free market environment, but this is one of those opportunities if you can find shares to short.