Music streaming firm has 157 m customers and could be valued at $25 bn in its New York IPO
Spotify is poised to make its stock exchange debut on Tuesday, in a flotation on the New york stock exchange that could value the company at $20 bn- $25 bn( PS14. 2bn to PS17. 8bn) according to analysts.
The music streaming business was launched 12 years ago as a free-to-use service, shall be financed by advertising. Spotify now has 157 million clients, and has managed to convert 71 million of those into paying users of its premium subscription service.
However, Spotify has never made a profit, making it more tricky for potential investors to value the firm. It also counts the likes of Apple and Amazon as challengers, a daunting prospect given the depth of their pockets.
Here are some of the key questions as the Swedish firm prepares to go public.
What is different about this flotation ?
Unlike most companies that float, Spotify is not issuing any new stock, which means it has not set a price for the market share in advance. Instead it is selling shares currently held by its private investors, rather than handling it in the usual way with the process managed by investment bankers. It will save the Swedish company fund but it is likely to create volatility when the shares go live on Wall street( 14:30 BST) as investors try to settle on a price. The company has constructed losses of virtually EUR1bn( PS870m) over the past three years, so investors will not be able to rely on a traditional price earnings ratio as a guide.
Why does Spotify want to float ?
Spotify made a commitment to its original investors that they would have the opportunity to cash in their investment, and this is it. The flotation will help to fund expansion of the business, but it will also ramp up pressure on the management. By going public, Spotify’s strategy and performance will come under increased scrutiny, and investors will expect progression, fast.
What is it worth ?
Analysts are predicting Spotify could be valued at $20 bn- $25 bn on its debut on the New york stock exchange but the reality is no one knows. It is more difficult to predict than usual, because no advance cost for the shares has been set. Investors will be weighing up possibilities for growth against the fact Spotify has failed to turn a profit in its 12 -year existence. The company’s costs- including the royalties it pays to record labels and artists- are greater than its revenues, although that gap is constricting. A successful float will depend on whether or not investors believe Spotify’s claim that it can become profitable and fend off bigger challengers such as Apple and Amazon.
What are Spotify’s strengths ?
Spotify has proved be permitted to drive strong revenue growth, with revenues rising from EUR7 46 m in 2013 to a predicted range of between EUR4. 9bn and EUR5. 3bn last year. With an estimated 40% share of the global music streaming marketplace, Spotify is the dominant player in key sectors, increasing its bargaining power with labels and artists over the royalties it pays them. Meanwhile user numbers are expected to increase to 170 million this year, with paying subscribers expected to rise from 71 million to 90 million. One of current challenges will be persuading more non-paying customers to sign up for paid-for services.
What are the threats ?
Simply put, it’s possibilities for competitor. Spotify is currently the market leader but tech giants such as Apple and Amazon have deep pocket and could cause some injury should they decide to mount a key challenge. Both companies already offer hardware such as the iPhone and Amazon Echo which are available with their own, pre-loaded music-streaming services. Spotify’s restriction supplier base, with only four music companies controlling the rights to 87% of the music streamed on Spotify, is another hazard, according to analysts at Hargreaves Lansdown.
What will it mean for customers ?
The flotation will mark a new era for Spotify but it is not yet clear what changes the firm has schemed. Analysts say it are gonna have to diversify over day, to ensure that it stands apart from rival streaming services. One alternative would to be create more original content, in accordance with the video shot for Spotify by Taylor Swift for her single Delicate. Spotify has already moved into podcasts and rendering original music.
How have other recent tech floats performed ?
Recent technology floats have proved volatile and investors have been selling off shares in the wider sector, concerned by the prospect of greater regulation for tech firms such as Facebook. Cloud storage company Dropbox is up 40% since it floated last month, but shares in Snap- the company behind social media app Snapchat- are down 15% compared with their float price.
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