Spotify files to go public with 159 million active users, 71 million premium subscribers
Popular music streaming service and Apple Music competitor Spotify announced plans to go public on Wednesday, though the company has already been trading on private markets at an estimated valuation of $23 billion.
According to its Form F-1, filed with the U.S. Securities and Exchange Commission, Spotify is offering shares worth up to $1 billion on the New York Stock Exchange under the ticker "SPOT," though the figure is merely a placeholder for calculating registration fees.
In its disclosure, the company offers a better look at potential public valuation, saying low and high sale prices per share in private trading ranged from $37.50 to $125.00 during the year ending on Dec. 31, 2017. Those numbers jumped to $90.00 and $132.50, respectively, in the period between Jan. 1 through Feb. 22, with the high end affording a valuation of more than $23 billion.
With the filing, Spotify revealed a detailed look at its finances, data that is typically obscured or glossed over completely in press conferences. For 2017, the company generated 4,090 million euros (about $5 billion), but posted a net loss of 1,235 million euros (about $1.5 billion).
As for Spotify's customers base, at the end of 2017 the company had 159 million monthly active users, 71 million premium subscribers, and a total of 40.3 billion streaming content hours.
"We believe that our number of Premium Subscribers is nearly double the size of our nearest competitor, Apple Music," Spotify said.
The statement lines up with claims from Apple, which earlier this month reported some 36 million users subscribe to Apple Music worldwide. However, record industry sources note Apple Music is adding subscribers at a rate of 5 percent in the U.S., compared to 2 percent for Spotify, suggesting the Cupertino tech giant might overtake Spotify in that country as soon as this summer.
Spotify continues to be a streaming powerhouse internationally, and is active in 61 countries. The company plans to expand on that footprint in the future, according to the SEC filing.
Today's IPO arrives nearly two months after reports claimed Spotify secretly filed to be listed on the NYSE in early January, shortly after it crossed the 70-million subscriber mark.
According to its Form F-1, filed with the U.S. Securities and Exchange Commission, Spotify is offering shares worth up to $1 billion on the New York Stock Exchange under the ticker "SPOT," though the figure is merely a placeholder for calculating registration fees.
In its disclosure, the company offers a better look at potential public valuation, saying low and high sale prices per share in private trading ranged from $37.50 to $125.00 during the year ending on Dec. 31, 2017. Those numbers jumped to $90.00 and $132.50, respectively, in the period between Jan. 1 through Feb. 22, with the high end affording a valuation of more than $23 billion.
With the filing, Spotify revealed a detailed look at its finances, data that is typically obscured or glossed over completely in press conferences. For 2017, the company generated 4,090 million euros (about $5 billion), but posted a net loss of 1,235 million euros (about $1.5 billion).
As for Spotify's customers base, at the end of 2017 the company had 159 million monthly active users, 71 million premium subscribers, and a total of 40.3 billion streaming content hours.
"We believe that our number of Premium Subscribers is nearly double the size of our nearest competitor, Apple Music," Spotify said.
The statement lines up with claims from Apple, which earlier this month reported some 36 million users subscribe to Apple Music worldwide. However, record industry sources note Apple Music is adding subscribers at a rate of 5 percent in the U.S., compared to 2 percent for Spotify, suggesting the Cupertino tech giant might overtake Spotify in that country as soon as this summer.
Spotify continues to be a streaming powerhouse internationally, and is active in 61 countries. The company plans to expand on that footprint in the future, according to the SEC filing.
Today's IPO arrives nearly two months after reports claimed Spotify secretly filed to be listed on the NYSE in early January, shortly after it crossed the 70-million subscriber mark.
Comments
Firstly: The lie is calling them "Premium Subscribers" - the reason why they don't turn a profit is because they're overloaded with promotional memberships.
Ignoring ad revenue, which has been described as minimal, simple math shows that their average "premium" subscriber pays around $58 euros a year, this is less than HALF the cost of the full price subscription ($119.88 euro a year) - since we know that people do indeed pay full price, this reveals that a majority of their "Premium subscribers" are utilising a promotional discount of 50% or more, this is why Spotify have had recent spikes in paid subscribers, they've been using very cheap promo offers to artificially drive up membership. A tactic to make the company look more successful for their IPO listing, but it has been clearly to the detriment of the company's bottom line. (I.E. The false notion that you can convert every subscriber to a more expensive subscription.)
Now the next problem: original content is expensive and Spotify's competitors are all moving into this space. So we can see that Spotify are trying to raise funds from an IPO to pay for original content, but that just leaves investors carrying the bill, since they don't have the memberships to pay for this under their current business model and just to break even they'll need to freeze all costs and add another 21M members (but every member introduces further costs, so it's rather cyclical) - that's a real problem for investors because it raises the question: how are spotify to start turning a profit, when they can't extract a profit from the ones they already have? Bigger numbers lead to bigger losses.
Spotify has been around a long time. Every year they lose more and more money. Yes as they grow and get more people signed up, they lose even more money. So in 2017, they made 5 billions, but still posted a net loss of 1.5 billion. You know why they want to get into the stock market like this? Because they can't find any more suckers to give them a big pile of money to keep the doors open.
What is dragging them down,I'm sure is all the FREE users. 100 million free users!!!!! They're stuck now. They can't cutoff the free users, and their overall numbers would drop quite a bit. Making their value look much worse. Instead of saying they have 170 million active users, it turns into 70 million active users. That wouldn't look so good.
What's the future look like? Maybe 200 millions users, with 80 million or so paying, and losing 2 billion for the year!!! Spotify was founded in 2006. 11 years ago. Officially launched in 2008. How long can they keep losing money? The larger they get, the more they lose. They've been in the red every year that if at some point they can make it into the black in the future, they have a huge pile of bills to pay with high interest rates. Trying to be like a mini U.S. Government in spending is not going to work out for them.
Spotify's operating loss didn't increase substantially in 2017. Almost all of the increase in its annual loss came from finance costs. And it wasn't really an increase in costs, it's just accounted for as such. Because it had debt in the form of convertible notes (and had outstanding warrants), increases in its share price are accounted for as finance costs. They didn't really lose that money. Simplifying a bit, the price at which convertible note and warrant holders can exchange for or buy shares now represents a greater discount to the share price - and that discount, when it comes to financial accounting, represents a cost to Spotify.
Spotify also cleared a considerable amount of debt from its books by having convertible notes converted to shares. Its creditors seem comfortable converting their debt to equity in the company (perhaps in part because there are some safeguards in place). We might look at it this way: Instead of raising capital and diluting existing shareholders by doing a public stock offering, Spotify has raised capital (i.e. got rid of existing debt) and diluted existing shareholders by having convertible notes converted to equity.
That said, Spotify's operating results for 2017 look pretty good. It continued to increase its gross margins, though it still had an operating loss because it continued to dump a lot of money (and significantly increased the amount of money it dumped) into R&D and marketing. Its average revenue per premium user fell a good bit, and that's somewhat worrisome. But I think that concern is more than offset by its increased premium revenue, its dramatically increased premium gross margin, and its decreased premium churn. And, surprising to me, it actually had a positive gross margin for its ad-supported service. So that channel for driving customers to its premium service is no longer costing it money (or isn't costing it as much money) incrementally. That's a win-win.
As for why they are going public: They don't seem to be doing a public offering. According to their registration statement, they're doing a direct listing. So this wouldn't seem to be a way for Spotify to raise additional capital.
1. They are still losing money; I don't believe they've *ever* made money. They may be able to keep going like this for quite a while yet (see also Amazon), but it will catch up to them eventually unless they massively increase the advertising or data-selling revenue, and that will degrade the user experience.
2. They have not figured out how to convert free users to paid users, even though they've been around for eight years now. That's a long term problem.
3. As noted by EsquireCats, they give away too many promotional/discount/free premium accounts. Here in Canada, you buy an expensive smartphone you get a Spotify premium account for "free" from most carriers. Doing the same thing worldwide is costing them dearly.
4. Apple Music is growing faster than Spotify. And then there's the biggest issue:
5. Spotify doesn't pay properly for its content. AI ran a story about the lawsuit against Spotify that runs to a few billion $ in owed royalties. Assuming the win even a partial victory, Spotify will be even deeper into the red.
I'm all for competition and am genuinely glad there's a close competition between the two services to keep each other on their toes, but Apple has zero of these same problems. I'm not saying Spotify is dooooomed, but it will need to make huge changes in the fairly near future in order to remain competitive against Apple Music.
Apple has never, EVER priced its services to lose money no matter who the competition is. To Apple a loss leader product is anathema.