Spotify Goes Public, Music For Investors

Spotify is ‘Music for Everyone’ but will it be music for investors? The world’s biggest streaming music provider went public Tuesday. Spotify will trade on the NYSE under the ticker $SPOT.

Spotify is ‘Music for Everyone’ but will it be music for investors? The world’s biggest streaming music provider went public Tuesday. Spotify will trade on the NYSE under the ticker $SPOT.

Spotify Music

Spotify expects shareholders to sell up to 55.7 million through it’s direct-listing approach that allows it to avoid the process of having bankers set the initial price of shares through a typical order book creation. As a direct listing, its opening public price will be determined by buy and sell orders collected from broker-dealers.

Spotify Debut – $SPOT Day One

AT CLOSE 4:01 PM EDT 04/03/18 $149.01 USD 17.01 12.89%

Volume 29,849,071 65

Day 1 Range 148.26 – 169.00

Spotify follows two other highly expected public listings in the past week, DropBoc $DBX which traded well above its IPO price and iQiyi $IQ which quickly fell below it. What will $SPOT do?  

About Spotify

Spotify is based in the European ‘tax effective’ country Luxembourg and in 2017 reported revenue of $4.99 billion in 2017, up 38% from 2016. Despite the huge revenue Spotify had an operating loss of $461 million, up from a $426 million loss in 2016.

$SPOT expects to have 198 million to 208 million monthly active users by the end of 2018, including paid and free users, an increase of 29% from the year-ago period. It expects 2018 revenue in the range of $6.1 billion to $6.8 billion. 

Analysts on Spotify

RBC Capital Markets

RBC initiated coverage pre-listing for Spotify with an outperform rating and $220 price target. RBC Capital Markets analyst Mark Mahaney said $SPOT has a sustainable advantage.

“We believe that Spotify has established a clear leadership position,” The analyst cites a total addressable market of $125 billion, its status as the global leader in music streaming, and potential to continue expanding its margins.

MKM Partners

Analyst Rob Sanderson at MKM Partners started coverage with a buy rating and $200 stock price target, saying he’s bullish on the margin opportunity and the expected growth of its target market.

“We believe margin leverage comes with [Spotify’s] influence on audience and demand generation. Enabling emerging artists could evolve into a long-term disruptive force for labels, or into a farm-system to enhance labels, but we think either path would be margin accretive for [Spotify].”

Sanderson believes a streaming audio service will eventually reach 80% of smartphone users, which implies a 2.4 billion user total addressable market (TAM) over the next several years.

What is Direct Listing

Spotify is using a different method for listing to avoid the banker fee infested traditional IPO approach. The approach is more fitting with it’s maverick musical basis.

The direct listing approach that allows $SPOT to avoid the process of having bankers set the initial price of the shares through a typical order book creation. As a direct listing, its opening public price will be determined by orders collected from broker-dealers.

The company plans to offer up to 55.7 million ordinary shares. In the company’s prospectus, Spotify says no public market for its ordinary shares currently exists. However there is a history of trading in private transactions. In its latest updated filing with the Securities and Exchange Commission on March 23, Spotify said that from Jan. 1 through March 9, shares traded privately in a price range of 48.93 to 132.50.

In this process its public market valuation will be set just before the stock lists. That will be based on the number of shares existing investors want to sell, demand for those shares and agreed-upon price. As of March 9, Spotify had 183.6 million ordinary shares outstanding.

Spotify Valuation 

In 2017 Spotify’s valuation ranged up to $20.9 billion. Its current market valuation has an estimated range of $15.9 billion to $23.4 billion. 

The Luxembourg-based company expects to have 198 million-208 million monthly active users by the end of 2018, including paid and free users, an increase of about 29% from the year-ago period. It expects 2018 revenue in the range of $6.1 billion to $6.8 billion.

Competitors

According to Spotify’s IPO prospectus the company is double the scale of its closest competitor, Apple $AAPL with itunes and Apple Music platform. . Apple Music recently said it had 38 million paying subscribers. Other competitors include Google Play Music, owned by Alphabet $GOOGL, Pandora $P and Amazon’s $AMZN Amazon Music platform. Alphabet is said to be launching a new music streaming service.

Spotify Competitors

Outstanding Lawsuits Risk

Wixen Music Publishing, which represents songs by Tom Petty, Neil Young, Stevie Nicks and other songwriters, sued Spotify in a federal court in California in December last year. The lawsuit accaccusing the comapny of using thousands of songs without proper licenses. This is just the latest in a string of such copyright suits. The suit asks for $1.6 billion in damages, $150,000 for each song. Spotify has denied these charges to the best of our knowledge.

 Source: Spotify Investors,

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