I admit it … I’m one of those people who sings a little too loudly (and a little off-key) when I have my headphones inside especially if Journey’s “Do not stop believing” “comes on.
I can not help it, music moves me … to the chagrin of anyone in listening range.
In fact, most of my iPhone’s memory is devoted to my playlists. Before I upgraded my storage recently, I really had to delete photos to keep all the music ready to blast at the touch of my finger.
Now I have a lot of space … but it’s a problem.
I’ve been known to shell out $ 20 a month to buy songs from Apple. I know this is completely unnecessary with today’s streaming technology. But I’m stuck in my ways.
Recently, I “unstuck myself” … and I joined the popular Swedish-born direct-listening service, Spotify. And I turn never back.
So when Spotify – valued at about $ 20 billion – announced it would go public with a stock offering in March / April in a unique way, I perked up. I started combing through the headlines, and already analysts call this the biggest tech initial public offering (IPO) of 2018. The anticipation is huge!
But, alas, I am a scenic at heart. Despite my excitement, I have to ask myself … is the hype for Spotify stock really worth it? Now, let’s take a detailed look at this IPO to find this.
Talking about a music revolution
In my opinion, Spotify has been part of the most important innovation in music since perhaps Kurt Cobain discovered ear-splitting comments and raw, quizzy lyrics about teen angst.
The concept is simple: you stream music on the internet. Imzist. Or, mostly, a small $ 9.99 monthly fee. You just need the Spotify app to access it all.
When Spotify launched in October 2008, it was a disruptive, revolutionary idea. Then the company helped pioneer the music streaming market and paved the way for services such as Apple Music (Apple’s streaming service, which was live much later in 2015).
Spotify is an endless, user-friendly treasure chest.
You listen to what you want, where you want, when you want. The app is compatible with almost every device I could think of from computers to smartphones to tablets.
And if all the music sounds overwhelming, do not worry – you can also use its unique music-discovery feature to find songs that suit your music tastes.
The whole platform is a great idea.
Unfortunately, investors like us could not participate in this revolutionary service because the company was kept private for the last decade. Now we can soon take part in the stock, we need to make sure that it is worth the investment.
The Times they are a changin for a trillion industry of $ 1.8
The first thing to note is that according to PwC, the global entertainment industry is expected to rise from $ 18 trillion in 2016 to $ 2.2 trillion by 2021. That’s fine, but it represents a compound annual growth rate of 4.2% – down from the 4.4% Forecast made in 2016.
That means the old-school entertainment industry starts to plateau. To fix this, the industry needs to focus on building sustainable relationships with customers.
After all, consumers are king. When it comes to recordings – film, television, music – we dictate what we want to see, hear and experience. We agree with our time, our attention and a small subscription fee (think Netflix, Amazon Video and Hulu).
Just as industries and products like health care, cars, refrigerators, thermostats, and so on, need a revolution – see precision medicine and the internet of things – so was entertainment.
And the revolution is here. Spotify is just one of the big players.
That’s why Spotify has about 140 million active listeners, and 70 million of them pay premium fees for advanced features. Better yet, the service boasts 30 million songs and adds more than 20,000 per day.
It also features over 2 billion playlists, generated by the company’s growing user base (a great idea that deals with a customer much more directly) and 5 million more playlists are created or edited daily.
This is obviously a huge achievement. However, there is one problem …
The problem: money, money, money
Despite all this, Spotify has not found a way to be profitable.
Yes, sales jumped 52% to $ 3.09 billion in 2016. But net loss more than doubled, coming in at $ 568 million. (Although the net adjusted loss is more than $ 310 million.)
For example, approximately $ 2.62 billion of the revenue evaporated at the sold cost. Another $ 440 million disappeared to sales and marketing expenses, etc.
At least earnings before interest, taxes, depreciation and amortization were negative $ 169.2 million in 2016, compared to $ 180 million last year Billboard Excluding.
But we need to see that the company generates positive income.
Spotify is not. So the numbers made me raise an eyebrow. With this in mind, I turn to Paul Mampili to get his thoughts on the public listing of Spotify.
Paul Mampili Talks Spotify Stock
Paul is our guy for all disruptive files, so I knew he needed to have some interesting ideas about this. Here’s what he told me:
Spotify’s public listing is interesting from two angles: first, it’s a non-traditional Europe, because it’s done Wall Street from the price setting. Instead of making shares available to the general public, Spotify will show up directly on the stock exchange. This means that only institutional investors have access – eliminating the need for banks to set an initial price, link sellers and buyers, etc. This is something that makes initial trading a wild card because Wall Street’s participation offers price stabilization for IPO.
Secondly, Spotify is still losing money, even though it has a huge subscriber base. However, it is also a subscription business, which means repeating revenue – and this is a great model. Plus, like Netflix, it’s a global business, so it may continue to grow.
So, the biggest concern for Spotify is this: Will enough people buy the IPO for you to want to be in it from day 1? Because most times you have a chance to buy it lower. This is because most people play IPO for a quick pop in the first day or week and dumps it.
I say that people who want to buy the stock as an investment, should take their time, wait to see how the stock trades – and see how Spotify business performs over a few quarters. Then you can build your position in time if things look good.
All in all, Spotify is an amazing product with a great model. That could ultimately lead to profitability along the way. But this is a “wait and see” one. Do not catch up in all the hype just yet!