The world’s biggest music streaming service Spotify is now ready to go public. Valuation?
The company announced on Wednesday that it will start trading on the New York Stock Exchange under the ticker name SPOT.
With its 71 million-strong paying subscribers all over the world and more than 159 million monthly active listeners as of December 2017, Spotify’s shares have traded as high as $132.50 on private markets, which would give the streaming service company a valuation over $23 billion based on ordinary shares.
Spotify is also pulling off an unconventional move by opting to list shares directly on the NYSE rather than issue new shares. It means then that the company’s existing shareholders will take their shares directly to the market. Such set-up will allow early investors and employees to sell their stakes. The move is not intended to raise new funding.
UK-based music industry analyst at MIDiA Research Mark Mulligan said: “It’s about a company that is letting its investors to get their returns so it can move on to the next stage of its career.”
Based on its F1, Spotify reported a revenue of $2.37 billion in 2015, increased it to $3.6 billion in 2016 and even improved to $4.99 billion in 2017. The company’s paid subscribers are growing at a rate of 46 percent year-over-year while monthly active listeners are increasing 29 percent year-over-year.
Spotify is available in 61 countries and territories. It is leaving way behind its nearest competitor, Apple Music, with only 36 million subscribers. With market support almost half of what Spotify enjoys, Apple Music also does not offer a free tier that is supported by advertising.
Despite this new development, Spotify continues to be challenged by threats. For one, Apple, Amazon, and Google are also in the streaming business. They also appear to hold an advantage over Spotify because they all sell devices on which consumers can listen to music.
Another potential threat is that while Spotify has signed deals with all the “big three” record labels namely Warner, Universal, and Sony, at the end of the day, it’s still the music executives who have the leverage in negotiations.
The company said that its shares sold for between $37.50 and $125 each in private transactions last year and more than $132 this year. Said prices shared by the company indicate a range of $6.3 billion to more than $23 billion. The higher figure would then establish Spotify as a company with one of the biggest public debuts of a tech company since 2012.
Then again, experts say private investors have tended to value firms more highly than public markets in recent years. One example would be Snap, owner of Snapchat, who had nearly $30 billion market capitalization after its first trading last year, but it has since struggled to sustain such impressive figure.
Spotify also reported a loss of $1.5 billion in 2017. It also had an operating loss of $461.3 million last year, and $425.9 million in 2016.