Spotify floated on the New York Stock Exchange (NYSE) for the first time in early April and closed its first day of trading with a valuation of $27 billion. This makes it one of the largest technology company public offerings of all time. However, at the moment only existing share owners and employees can trade Spotify shares, meaning that the public markets are the only thing determining its worth. With most initial public offerings (IPOs) new shares are offered and underwritten by investment banks to determine their worth. So, is Spotify really worth $27 billion?
Share Price Fluctuations
In 2017 Spotify shares were bought and sold privately, ranging from a low of $37.50 to highs of $125. From the start of 2018 onwards though, this has narrowed with the range going from $90 up to $132.50 by the end of February. Once it was announced they would be floated on the NYSE, anticipation and demand were expected to grow with the price too.
The main reason Spotify has begun listing its shares is to act on a commitment it made to investors that they would be able to cash in on their investment in the future. There’s also a theory that being publicly traded adds more pressure to management and could be a catalyst for making changes at a higher level.
Revenue vs Value
Given the massive decline in physical music sales, Spotify has been viewed as leading the charge for the future of music by many. The growth in its value since it was formed in 2006 to becoming a billion-dollar company could also mean it’s worth more than the entire music industry as a whole.
In 2017 annual revenue for Spotify was close to $5 billion, with 159 million active users, of whom 71 million were paying monthly subscriptions. While this dwarfs the 36 million subscribers Apple Music has, its worth can be questioned due to the overall business model. Around 70% of revenue goes to record labels and music publishers. This is good for the music industry but does mean the company regularly makes an annual loss.
How are Artists Affected?
Many artists have previously hit out at Spotify, claiming that only the biggest artists can make enough income from the streaming service. This is mainly due to the number of streams required to make anything worthwhile and that the revenue goes direct to record labels and music publishers, not always trickling down to the right artists.
Should the floating on the NYSE continue and result in management or business model changes then this could evolve too. If this allowed artists to create their own pages and a pay-per-listen model payment direct to them rather than the labels, it could really help the music industry.
What Will Change?
In the early stages after the floatation, very little it seems. While moving to a more artist-centred model could work and happen in the future, at the moment the record labels control around two thirds of the music plays through Spotify. So, any such action could see them lose a lot of this and business. However, there has been an increase in podcasts, producing exclusive music and videos, which could increase in the future to support further growth.
Will Other Streaming Services Follow?
One worry for Spotify is the threat from rivals such as Apple, Amazon and Google, who all have much deeper pockets. While Spotify now has to turn a profit that it’s floated on the NYSE, these companies’ music platforms don’t, and they could easily throw a lot of money at them to really take on Spotify.
In the same way that forex signals can show the best time to invest in certain currencies, it’s worth keeping an eye on technology news to see if any developments mean it could be beneficial to invest in Spotify shares. That is if/when they offer any new shares, which could be sooner rather than later depending on performance over the coming months.