Stephen Silver
Popular music streaming service and Apple Music competitor Spotify announced plans to go public on Wednesday, though the company has already been trading on private markets at an estimated valuation of $23 billion.
According to its Form F-1, filed with the U.S. Securities and Exchange Commission, Spotify is offering shares worth up to $1 billion on the New York Stock Exchange under the ticker "SPOT," though the figure is merely a placeholder for calculating registration fees.
In its disclosure, the company offers a better look at potential public valuation, saying low and high sale prices per share in private trading ranged from $37.50 to $125.00 during the year ending on Dec. 31, 2017. Those numbers jumped to $90.00 and $132.50, respectively, in the period between Jan. 1 through Feb. 22, with the high end affording a valuation of more than $23 billion.
With the filing, Spotify revealed a detailed look at its finances, data that is typically obscured or glossed over completely in press conferences. For 2017, the company generated 4,090 million euros (about $5 billion), but posted a net loss of 1,235 million euros (about $1.5 billion).
As for Spotify's customers base, at the end of 2017 the company had 159 million monthly active users, 71 million premium subscribers, and a total of 40.3 billion streaming content hours.
"We believe that our number of Premium Subscribers is nearly double the size of our nearest competitor, Apple Music," Spotify said.
The statement lines up with claims from Apple, which earlier this month reported some 36 million users subscribe to Apple Music worldwide. However, record industry sources note Apple Music is adding subscribers at a rate of 5 percent in the U.S., compared to 2 percent for Spotify, suggesting the Cupertino tech giant might overtake Spotify in that country as soon as this summer.
Spotify continues to be a streaming powerhouse internationally, and is active in 61 countries. The company plans to expand on that footprint in the future, according to the SEC filing.
Today's IPO arrives nearly two months after reports claimed Spotify secretly filed to be listed on the NYSE in early January, shortly after it crossed the 70-million subscriber mark.
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24 Comments
I quite like Spotify, they were early on the market and introduced a product at just the right time and technological mix. Although I'm no longer a subscriber (I prefer what Apple is doing with Apple Music) I see the two services as indirect competitors due to their differing priorities. The below is just an straight forward evaluation for why this is going to be a very challenging time for Spotify.
Firstly: The lie is calling them "Premium Subscribers" - the reason why they don't turn a profit is because they're overloaded with promotional memberships.
Ignoring ad revenue, which has been described as minimal, simple math shows that their average "premium" subscriber pays around $58 euros a year, this is less than HALF the cost of the full price subscription ($119.88 euro a year) - since we know that people do indeed pay full price, this reveals that a majority of their "Premium subscribers" are utilising a promotional discount of 50% or more, this is why Spotify have had recent spikes in paid subscribers, they've been using very cheap promo offers to artificially drive up membership. A tactic to make the company look more successful for their IPO listing, but it has been clearly to the detriment of the company's bottom line. (I.E. The false notion that you can convert every subscriber to a more expensive subscription.)
Now the next problem: original content is expensive and Spotify's competitors are all moving into this space. So we can see that Spotify are trying to raise funds from an IPO to pay for original content, but that just leaves investors carrying the bill, since they don't have the memberships to pay for this under their current business model and just to break even they'll need to freeze all costs and add another 21M members (but every member introduces further costs, so it's rather cyclical) - that's a real problem for investors because it raises the question: how are spotify to start turning a profit, when they can't extract a profit from the ones they already have? Bigger numbers lead to bigger losses.
I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.