Spotify secretly files for IPO as it reaches 70M paid users
As Spotify grows its user base to over 70 million paid subscribers, the company has also filed in secret for public offering of shares of the company's stock, but will make the shares available to the public in a non-traditional manner.
The company took to Twitter to announce the milestone. The last time it had made a public declaration of paid subscribers was in July, when it said that it had 60 million paid subscribers, with around 140 million paid subscribers plus ad-supported users at the time.
Should the Security and Exchange Commission approve Spotify's plan, reports suggest that at some point in the first half of 2018, the stock will be available on the open market, without the initial public offering for investors to gage pricing and demand for the stock. This will allow investors and those granted shares of the company to not be bound by lockups, preventing sale for a set period of time, and theoretically allow early shareholders to cash out whenever they want.
The unusual method of stock sale will allow the company to go public, without needing any additional funding to do so prior to the sale.
According to Bloomberg's analysis of what is known about Spotify's documents, Google's IPO period was similar, but not identical. The search engine giant took a hybrid approach to it's initial offering, and issued over 14 million new shares in 2004, followed by 5.4 million sold by investors at an $85 per share offering price.
Spotify is facing a lawsuit from music rights management company Wixen, who administers music by Tom Petty, Zach De La Rocha and Tom Morello of Rage Against the Machine, Dan Auerbach of The Black Keys, Steely Dan's Donald Fagen, Rivers Cuomo of Weezer, David Cassidy, Neil Young, Sonic Youth's Kim Gordon and Stevie Nicks, among others. Wixen's suit alleges that a $43 million settlement that Spotify agreed to pay to settle a 2015 class action suit was insufficient, and is seeking $1.6 billion dollars to put things right.
It is not clear what effect, if any, the Wixen lawsuit will have on the public stock offering planned by Spotify.
The company took to Twitter to announce the milestone. The last time it had made a public declaration of paid subscribers was in July, when it said that it had 60 million paid subscribers, with around 140 million paid subscribers plus ad-supported users at the time.
In contrast, Apple said during the 2017 WWDC that Apple Music had 27 million subscribers -- all paid or on the three-month trial.Hello 70 million subscribers
-- Spotify (@Spotify)
Should the Security and Exchange Commission approve Spotify's plan, reports suggest that at some point in the first half of 2018, the stock will be available on the open market, without the initial public offering for investors to gage pricing and demand for the stock. This will allow investors and those granted shares of the company to not be bound by lockups, preventing sale for a set period of time, and theoretically allow early shareholders to cash out whenever they want.
The unusual method of stock sale will allow the company to go public, without needing any additional funding to do so prior to the sale.
According to Bloomberg's analysis of what is known about Spotify's documents, Google's IPO period was similar, but not identical. The search engine giant took a hybrid approach to it's initial offering, and issued over 14 million new shares in 2004, followed by 5.4 million sold by investors at an $85 per share offering price.
Spotify is facing a lawsuit from music rights management company Wixen, who administers music by Tom Petty, Zach De La Rocha and Tom Morello of Rage Against the Machine, Dan Auerbach of The Black Keys, Steely Dan's Donald Fagen, Rivers Cuomo of Weezer, David Cassidy, Neil Young, Sonic Youth's Kim Gordon and Stevie Nicks, among others. Wixen's suit alleges that a $43 million settlement that Spotify agreed to pay to settle a 2015 class action suit was insufficient, and is seeking $1.6 billion dollars to put things right.
It is not clear what effect, if any, the Wixen lawsuit will have on the public stock offering planned by Spotify.
Comments
(a Canada Telecom) pays them, but its not $10/month for sure, probably no more than $4.
I'd expect most of their "paid" customers are like that.
If Apple barely makes money with an ASP likely 2-3 times higher than Spotify, it's likely their in deep financial shit.
This is so the execs and board can make a motzah on the share listing from the gullible then race for the parachutes.
That's 700 million in annual revenue from paid subscribers only.
Then they have an advertising audience of 70 freak'n million on top of that...
Then the swag...
It’s almost as if every customer (paying or otherwise) also brings a cost with them. And since they charge a flat rate, then they have no idea whether that customer will be profitable or not., My guess is that many of them are not.
I think the the problem is that Spotify is really like an ISP for music: they will have about 20% of their customers who can be attributed to 80% of their costs, and under their current business model, the more they add then the worse it could get.
Maybe they need need to be looking at a some sort of usage tier, and start charging more for the individuals who are streaming music 24/7.
As you correctly point out, Spotify has 43 million more subscribers, but it’s possible that Apple is keeping the costs related to the service under control by keeping its subscriber levels to a manageable level.
https://qz.com/986641/unlike-spotify-apple-music-would-rather-make-money-than-have-400-million-users/
Amazon has ticked me off though with more and more of their music labeled "Unlimited only" and I don't want to reward them. Looks like an Apple Family plan for me very soon, just wishing they offered an annual rate like for single stream. I'm a family of two music listeners, but pay the same as a family of 6. Go figure.
Incremental paid subscribers are profitable for Spotify. And its gross margins are pretty good. What it needs to be profitable is, mostly, scale. It has that now. It isn't yet profitable mostly because it chooses to continue to spend a lot of money on customer acquisition. That's what a lot of companies in comparable positions (and at comparable points in the development of their businesses) do and it's what Spotify should be doing. Grabbing market share is easier and cheaper now than it will be in the future when it will largely mean pulling customers away from competitors rather than pulling in customers who are new to streaming. So Spotify is delaying becoming profitable in order to grow its subscriber base as much as it can now. That should allow it to be more profitable later.
Spotify also has significant borrowing costs and that has contributed to how much money it's been losing. That's another aspect of what it's doing where it's taking more pain now in order to be better off done the road. Instead of diluting existing owners by raising (even more) capital through new share issuances, it's raised a considerable bit through borrowing. But it has good operational cash flow now so that shouldn't represent a long-term problem. It also has a good amount of cash available so it shouldn't be a problem in the short term. I'd add that Spotify is, it seems, compensating its employees (and, I suspect, its employee owners) quite well. That has added to its loses and further suggests an ability to be profitable if that were the priority.
If what has been reported about Spotify's results for the first half of 2017 is accurate, it's in pretty good shape now. It likely could be profitable any time it chooses to. The needed pieces are in place and the scale is there. It's just a question of when does Spotify want to sacrifice some of its great growth in order to be able to say that it's already making a profit.
You made it clear in the article that Spotify, apparently, isn't intending to do an IPO. But your title still suggests that it is.
If reports are accurate, Spotify hasn't filed for an IPO. It hasn't filed for any stock offering, actually. It's filed to be able to do a direct listing - to list existing shares such that they can be publicly traded on, e.g., the NYSE. That would effectively mean taking Spotify public, but without a new offering.