Spotify Valued at $29.5 Billion as Stock Begins Trading at $165.90 Per Share

[Karma*Police]

They've got about 30MM paid users, paying about $12/mo. Lifetime value over 5 years is about $720/user, valuation seems correct.

You also need to factor in cost. If they’re making $720/user but their cost is $750/user, with no economies from user growth, the company is essentially worthless.

Not saying that’s what they are, but it’s impossible to value a company purely on revenue.

 

[Cindori]

Adding more users doesn't help... they've been adding users since the beginning.

They lost money with 1 million users... and they lost money with 100 million users.

How do they solve this?

Think outside of the box. It's not all about subscription money.

Spotify is leading the industry with AI-powered playlists. This is a big opportunity, they have the power to create the equivalent of Google Adwords but for music. Artists pay money to get bumped in the algoritms - while making sure the content is still relevant for the user.

There's many opportunities like this brewing within Spotify.

 

[Gilligan's last elephant]

Tried paid Spotify, ending up cancelling it after a few months as I don’t really use it. It seems to only caters to mainstream music.

I use Spotify as i can find the most obscure prog rock music from the present back to the late 60s. Well worth the £10 per month.

 

[ArtOfWarfare]

Meanwhile, I'm still paid $0.0038 per stream.

**** Spotify.

Ok, and are your songs good enough that people will stream them 200 times? If so, you'll be paid $0.76/person/track, more than if people were just buying your song outright.

This is going to be a steady source of income over your life. It's not like sales where you have a spike and then it's gone. Grow your portfolio and the amount of money you make every day is going to grow.

If individuals aren't streaming your songs 200+ times, then your music isn't very good (sorry.) This model is far more fair than any others - great artists get paid throughout their lives, and artists who are flashes in the pan make a small burst and then nothing afterwards.

 

[FloatingBones]

As of December 31, 2017, Spotify had 159 million active monthly users and 71 million premium subscribers, which Spotify says is "double the scale" of Apple Music. Apple as of February boasted 36 million paying subscribers.

"Premium subscriber" count includes all family accounts, plus each and every sub-account in that same family account. From Spotify's SEC filings (page 14):

(5) We define Premium Subscribers as Users that have completed registration with Spotify and have activated a payment method for Premium Service. Our Premium Subscribers include all registered accounts in our Family Plan. Our Family Plan consists of one primary subscriber and up to five additional sub-accounts, allowing up to six Premium Subscribers per Family Plan subscription. Premium Subscribers includes subscribers who are within a grace period of up to 30 days after failing to pay their subscription fee.

Anyone who has a "family" account almost certainly has at least one sub-account, or there's no point in having a family account. I'd guess most probably have the maximum number of sub-accounts. As Nathan Lane's character on "The Good Wife" said, "Always look at the footnotes!" A competent SEC filing would have included running averages of the number of "accounts" being scored for each family account. In short, if you are counting real accounts, then Spotify's numbers are inflated by millions and millions. Apple may well be doing the same trick with their numbers, but music subscriptions are only a tiny crumb of Apple's total revenue.

This little tidbit came from the great article about this IPO: "Spotify IPO Watch: Buy High, Sell Low — Music Tech Solutions"

 

[Papanate]

Article Link: Spotify Valued at $29.5 Billion as Stock Begins Trading at $165.90 Per Share

This has all the earmarks of a Enron type scam. A company that has yet to turn a dollar in profit;
has lost money the last 4 years of operations; has an unknown business plan; yet has been paying
the corporate officers excessively ridiculous amounts - maybe they are prompting themselves up
to sell to Apple or Google at some point - or perhaps Google is secretly running the company.

 

[IJ Reilly]

This has all the earmarks of a Enron type scam. A company that has yet to turn a dollar in profit;
has lost money the last 4 years of operations; has an unknown business plan; yet has been paying
the corporate officers excessively ridiculous amounts - maybe they are prompting themselves up
to sell to Apple or Google at some point - or perhaps Google is secretly running the company.

You mean, just like Tesla?

 

[jonnyb098]

Would someone mid explaining how a company that has been bleeding cash and is in the red is worth over 20 billion?! The reality is they are worth ZERO. They have yet to make a profit.

The stock market continues to baffle me.

 

[IJ Reilly]

Would someone mid explaining how a company that has been bleeding cash and is in the red is worth over 20 billion?! The reality is they are worth ZERO. They have yet to make a profit.

The stock market continues to baffle me.

Hate to sound like a broken record, but you mean, just like Tesla? They've been unprofitable for years, and are not merely bleeding cash, they are hemorrhaging cash. Yet the market is currently valuing that company at over $45B.

As I've said already, market valuations are never about the past, they are always about the future.

 

[jonnyb098]

Hate to sound like a broken record, but you mean, just like Tesla? They've been unprofitable for years, and are not merely bleeding cash, they are hemorrhaging cash. Yet the market is currently valuing that company at over $45B.

As I've said already, market valuations are never about the past, they are always about the future.

I get that its about the future. But thats just a clear gamble. Which in my eyes is all the stock market is. A shell game , rearranging funds based on speculation. If they're right, everyone wins. If they don't...oh well. In regard to Tesla, the automotive industry as a whole is a very dirty, messy, SATURATED business. Kinda like politics. It doesn't shock me one bit they're having production/financial issues.

So with that logic, can I then go get a million dollar loan today since I am pretty intelligent and make a decent middle class income? After all, this is all about the future and there's a really good chance I'll have a six figure income one day....you get my point.

 

[Bawstun]

The only problem is... their losses keep growing even as their subscriber numbers increase.

At this rate... a doubling of subscribers would also double their losses.

That's not good.

Something drastic needs to happen... because doing the same thing is only making it worse.



Spotify might be the "Netflix of music" in number of users. But even Netflix figured out how to make money.

Sure... it took a while for Netflix to become profitable. They started with mailing DVDs to people in the early days. But it certainly got their name out there and grew their userbase.

Then when they started streaming... they were basically reselling other people's content. And also continued to grow their userbase.

But today Netflix is a whole other company. An entertainment powerhouse. Maker of award-winning content.

Netflix became profitable as they expanded into other ventures. As the comment above states... Netflix isn't spending that much money on other people's stuff anymore. They make their own.

And it's working.

On the other hand... Spotify is basically doing the same thing they did since the beginning... streaming music.

And it's still a VERY expensive business since the licensing costs are astronomically high.

So as Spotify adds more users... it actually costs them more money to keep these customers.

Like I said before... they need to try something else... since their current situation isn't improving.

Maybe Spotify needs to produce their own content... so they don't have to give 70% of their revenue to someone else?

It worked for Netflix.

As a sidenote... it's weird to always compare Spotify to companies like Netflix or Amazon.

Simply saying... "They weren't profitable... but look at them now!" doesn't mean the same will happen for Spotify.

Yes... Amazon didn't make money... and now they do. But look at what Amazon has done to get there.

They started selling books. Then added CDs and DVDs. Then they made it possible for 3rd-parties to sell on Amazon... with Amazon getting a small percentage of the sale. Then they started Amazon Web Services... again with Amazon getting a percentage. Then they launched Amazon Prime shipping... which made people more likely to buy stuff from Amazon so they get their cut.

And that was just in the first 10 years.

We haven't even discussed Kindle, Amazon TV Studios, etc...

My point is... Spotify is nothing like these other companies. They pay an incredible amount of money to the record labels for the "privilege" of losing money on it.

Adding more users doesn't help... they've been adding users since the beginning.

They lost money with 1 million users... and they lost money with 100 million users.

How do they solve this?

IMO they aren’t profitable because of the state of the industry. Streaming is growing and just as vinyl faded I think the same will occur to CD’s. They are still popular but in general the industry has been declining year after year after year, so the trend is there for all to see.

Spotify solves their problem by eventually becoming so large that they are the only “name” in streaming. Netflix has Hulu and Amazon and other competitors, but they’re so far ahead of the game that it doesn’t really matter. Their userbase eclipses everyone else.

Eventually Spotify will become so large and profitable for record companies that they will have to cut new deals that benefit Spotify monetarily, or else Spotify will never profit and close. And record execs won’t allow that. Basically Spotify will be solved by behind-closed-doors business dealings once they receive enough user growth. That’s what I believe anyway

 

[IJ Reilly]

I get that its about the future. But thats just a clear gamble. Which in my eyes is all the stock market is. A shell game , rearranging funds based on speculation. If they're right, everyone wins. If they don't...oh well. In regard to Tesla, the automotive industry as a whole is a very dirty, messy, SATURATED business. Kinda like politics. It doesn't shock me one bit they're having production/financial issues.

So with that logic, can I then go get a million dollar loan today since I am pretty intelligent and make a decent middle class income? After all, this is all about the future and there's a really good chance I'll have a six figure income one day....you get my point.

You raise a number of issues. The first, the shell game argument. I would have you look at the performance of the S&P 500 over the last ten years. If that's a shell game, it's the most favorable shell game imaginable. Economics is about creating wealth, not moving it around.

You are right about Telsa being in a rough business. Very competitive, capital intensive, low margins (which is why I thought talk about Apple going there was silly). But it's the one Tesla chose to be in. Good luck to them.

Stock is not a loan, it's equity (a piece of future profits). Bonds are a loan. Tesla has gone to the bond market way too often, to the point where they've pretty much tapped that market dry. If they need to raise more capital (and they will) it will have to be in the equity markets, meaning selling more stock. That will dilute the ownership of current shareholders. If you're a shareholder, you want fewer shares on the market, not more.

If you go into a bank to borrow money, they should lend it to you based on your ability to pay it back. So in that sense the bond market is essentially the same.

 

[ginkobiloba]

Ok, and are your songs good enough that people will stream them 200 times? If so, you'll be paid $0.76/person/track, more than if people were just buying your song outright.

This is going to be a steady source of income over your life. It's not like sales where you have a spike and then it's gone. Grow your portfolio and the amount of money you make every day is going to grow.

If individuals aren't streaming your songs 200+ times, then your music isn't very good (sorry.) This model is far more fair than any others - great artists get paid throughout their lives, and artists who are flashes in the pan make a small burst and then nothing afterwards.

First, there have been a study that showed something less than 1% of music will be heard more than a 100 times in the lifetime of an individual. So, I have to wait two lifetimes to get paid $0.76

Second, who decides that an artist that doesn't get his/her song streamed 200 times per person doesn't deserve to be paid ? A company that produces NOTHING ? That produces NOTHING and yet manages to be one of the highest valuation ever , putting it's shareholders and leaders among the richest people in the world ( Daniel Ek is among the 20 richest people in the UK ) . So it's up to the artists have to buckle up and wait two lifetimes to earn $0.76 ? So that Spotify&co can build their yachts ?

Step 1 : Destroy the value of music by creating Napster.
Step 2 : Create Spotify then offer a pittance to the musicians telling them "Yeah it's low, but hey, it's better than nothing, right ? plus, if you really deserve it, you only have to wait two lifetimes to get a dollar. "

Sounds like a good plan.

 

[Michael Scrip]

Eventually Spotify will become so large and profitable for record companies that they will have to cut new deals that benefit Spotify monetarily, or else Spotify will never profit and close. And record execs won’t allow that. Basically Spotify will be solved by behind-closed-doors business dealings once they receive enough user growth. That’s what I believe anyway

Let's be clear... the record companies are already profiting from Spotify.

Spotify has billions of dollars coming in... and most of it goes to the record companies.

The record companies are getting paid... handsomely.

Unfortunately... after Spotify makes those royalty payments... and after their other administrative expenses... there's nothing left for Spotify itself. (actually less than nothing, as they operate at a loss)

Right now... the record companies profit... but not Spotify. That's what needs to be fixed.

Adding more users hasn't helped... since Spotify's losses have actually increased as they add more users.

One solution would be for the record companies to lower their royalty requirements which would leave some extra money for Spotify to keep.

You're right... the record companies don't want to see Spotify disappear... since they are making a ton of money from them.

But something needs to happen to make Spotify themselves profitable.

 

[Papanate]

You mean, just like Tesla?

If I meant Tesla I would have said Tesla.

 

[DeepIn2U]

These tech valuations are ridiculous.

Edit to add that the valuation suggests a per active user value of $188. That’s everyone. Not just premium paying customers.

Seems steep.

I know right?

Update: Spotify closed at $149.60, giving it a market cap of $26.5 billion.

Does Spotify even OWN rights to any music their peddling?!

Here just help the banks and ETFs and other vehicles of the major rich get fatter. Greeed is spreading.

 

[IJ Reilly]

If I meant Tesla I would have said Tesla.

Know it or not, you were also describing Tesla, one of the current darlings of the stock market. That was my very uncomplicated point.

 

[rafark]

Would someone mid explaining how a company that has been bleeding cash and is in the red is worth over 20 billion?! The reality is they are worth ZERO. They have yet to make a profit.

The stock market continues to baffle me.

How are they worth 0 if they have 70 M-I-L-L-I-O-N people paying them every month? That itself is super valuable, even if they're in reds. On top of that they have an amazing reputation, they're the industry standard. Big companies would kill to have either those millions or that position on an industry, let alone both.

 

[jonnyb098]

How are they worth 0 if they have 70 M-I-L-L-I-O-N people paying them every month? That itself is super valuable, even if they're in reds. On top of that they have an amazing reputation, they're the industry standard. Big companies would kill to have either those millions or that position on an industry, let alone both.

They're CEO also said a few years ago "in 3 years we will have a billion users". Yes Spotify has a great reputation. But to make money theres going to be some BIG changes that happen. Though the user base is loyal enough that they will probably stick around. We will find out soon. Facebook and Instagram got infinitely more annoying and useless after they went public, hence millions leaving the platform.

 

[Papanate]

Know it or not, you were also describing Tesla, one of the current darlings of the stock market. That was my very uncomplicated point.

I got your point. Tesla is not like Spotify in the modern marketplace.
Tesla for better or worse is in un-charted territory - Widespread adoption
of battery-powered vehicles is a serious threat to the oil industry - and
the Oil Industry works very hard at devaluing anything Tesla or Elon
Musk say or do.

Look at your statement - it sure sounds like the Oil Industry has won you over.
Tesla is painted as a 'fake industry' to many people - which if you look at Tesla
and compare it to Amazon - Tesla is ahead of the game in comparison to where
Amazon was at that point in their growth. Amazon did not make a dime for at least
10 years - and for a retail industry -it's extraordinary that Amazon wasn't panned
across the board as a failing company - quite the opposite happened - their stock
has been on a upward climb for years. Tesla gets panned because Oil Industry has
a vested interest in the company failing.

 

[gnasher729]

This has all the earmarks of a Enron type scam. A company that has yet to turn a dollar in profit;
has lost money the last 4 years of operations; has an unknown business plan; yet has been paying
the corporate officers excessively ridiculous amounts - maybe they are prompting themselves up
to sell to Apple or Google at some point - or perhaps Google is secretly running the company.

Very much different from Enron. Enron always claimed to be highly profitable, always claimed to make lots of money, had excellent business plans (which unfortunately didn't match reality, but you can't complain about their business plans).

 

[IJ Reilly]

I got your point. Tesla is not like Spotify in the modern marketplace.
Tesla for better or worse is in un-charted territory - Widespread adoption
of battery-powered vehicles is a serious threat to the oil industry - and
the Oil Industry works very hard at devaluing anything Tesla or Elon
Musk say or do.

Look at your statement - it sure sounds like the Oil Industry has won you over.
Tesla is painted as a 'fake industry' to many people - which if you look at Tesla
and compare it to Amazon - Tesla is ahead of the game in comparison to where
Amazon was at that point in their growth. Amazon did not make a dime for at least
10 years - and for a retail industry -it's extraordinary that Amazon wasn't panned
across the board as a failing company - quite the opposite happened - their stock
has been on a upward climb for years. Tesla gets panned because Oil Industry has
a vested interest in the company failing.

I am an EV owner and a total believer in the technology. So you are fishing in the wrong pond with your conspiracy theories.

This discussion isn't about the merits of the technology. It is entirely about how the markets can value a company that is has been unprofitable for many years, with a hazy plan for becoming profitable. I hope Tesla gets there, but if you think like an investor and look into their finances, you will see the red flags. These are: they are spilling cash at a frightening rate, and have pretty much tapped out their ability to borrow in the credit markets. The only other option for raising capital is floating more stock, which is bad news for current investors. I suppose they might also find a White Knight private investor to infuse more cash, but I am not sure Elon Musk's ego would accommodate such a thing.