Spotify files to go public with 159 million active users, 71 million premium subscribers

Posted:
in General Discussion edited February 28
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.
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Comments

  • Reply 1 of 24
    I quite like Spotify, they were early on the market and introduced a product at just the right time and technological mix. Although I'm no longer a subscriber (I prefer what Apple is doing with Apple Music)  I see the two services as indirect competitors due to their differing priorities. The below is just an straight forward evaluation for why this is going to be a very challenging time for Spotify.

    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.

    edited February 28 racerhomie3lolliveranantksundaramLordeHawkchasmvannygeeairnerdwatto_cobra
  • Reply 2 of 24
    fallenjtfallenjt Posts: 3,836member
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.
    macxpressjbdragonairnerdwatto_cobra
  • Reply 3 of 24
    macxpressmacxpress Posts: 4,425member
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.
    Yeah I don't see how Spotify has a sustained business model. 
    watto_cobra
  • Reply 4 of 24
    radarthekatradarthekat Posts: 2,418moderator
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.
    Wanna see the future of Spotify?  Just go take a look at Pandora’s 5-year stock chart.  
    racerhomie3chasmairnerdSpamSandwichwatto_cobra
  • Reply 5 of 24
    jbdragonjbdragon Posts: 1,741member
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.


    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.
    watto_cobra
  • Reply 6 of 24
    fastasleepfastasleep Posts: 1,543member
    Might as well wait for MySpace to go public.
  • Reply 7 of 24
    carnegiecarnegie Posts: 363member
    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.
    The $1 billion referred to in Spotify's registration statement is just being used to calculate the registration fee. It seems, consistent with previous reports, that Spotify isn't going to do a public offering. It's just going to go public through a direct listing.
  • Reply 8 of 24
    carnegiecarnegie Posts: 363member

    jbdragon said:
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.


    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.
    edited February 28 chasmrattlhed
  • Reply 9 of 24
    chasmchasm Posts: 620member
    A thank you to Carnegie for a level-headed analysis of Spotify, but there are still some issues even so:

    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.
    watto_cobra
  • Reply 10 of 24
    lukeilukei Posts: 316member
    I quite like Spotify, they were early on the market and introduced a product at just the right time and technological mix. Although I'm no longer a subscriber (I prefer what Apple is doing with Apple Music)  I see the two services as indirect competitors due to their differing priorities. The below is just an straight forward evaluation for why this is going to be a very challenging time for Spotify.

    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.

    You are ignoring the effect of family plans which is a strong growth area for Spotify and accounts for the average cost/user being significantly less than you 'expect'
  • Reply 11 of 24
    airnerdairnerd Posts: 518member
    What it comes down to me is who can get the new content or the content I want, first.  Amazon's Prime offering has almost no content I want, Apple Music has yet to tell me it can't find a song.  I used Spotify way back when, when they were about the only big name in streaming music.  It's all about differentiation, and I trust Apple would be able to get exclusive or first rights to any artist they really want to.  
    watto_cobra
  • Reply 12 of 24
    lkrupplkrupp Posts: 6,068member
    jbdragon said:
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.


    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.

    Free users cost money. Spotify has to pay the royalties even if the end user doesn’t through a subscription. So it boils down to how many of those free users eventually become subscribers. 
    watto_cobra
  • Reply 13 of 24
    SpamSandwichSpamSandwich Posts: 29,331member
    Their business model is deeply flawed. They’ll never be profitable.
    watto_cobra
  • Reply 14 of 24
    irnchrizirnchriz Posts: 1,553member
    71 million paying subscribers and making a 1.5 BILLION dollar loss.  Ouch.
    watto_cobraSpamSandwich
  • Reply 15 of 24
    croprcropr Posts: 787member
    irnchriz said:
    71 million paying subscribers and making a 1.5 BILLION dollar loss.  Ouch.
    Seeing these figures,  I am wondering how much Apple is making with 50% of the subscribers.   In this kind of business there is always some economy of scale so the cost per subscriber must be slightly higher for Apple.
    edited March 1
  • Reply 16 of 24
    lkrupplkrupp Posts: 6,068member
    irnchriz said:
    71 million paying subscribers and making a 1.5 BILLION dollar loss.  Ouch.
    Amazon did it for years and Wall Street cheered.
    watto_cobra
  • Reply 17 of 24
    lkrupplkrupp Posts: 6,068member

    cropr said:
    irnchriz said:
    71 million paying subscribers and making a 1.5 BILLION dollar loss.  Ouch.
    Seeing these figures,  I am wondering how much Apple is making with 50% of the subscribers.   In this kind of business there is always some economy of scale so the cost per subscriber must be slightly higher for Apple.
    Apple has never, EVER priced its services to lose money no matter who the competition is. To Apple a loss leader product is anathema. 
    watto_cobra
  • Reply 18 of 24
    lukeilukei Posts: 316member
    lkrupp said:
    jbdragon said:
    fallenjt said:
    I wouldn't invest in this stock. Too much competition from the big guys: Apple, Google, Amazon...Going against these guys will be kiss of death sooner or later.


    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.

    Free users cost money. Spotify has to pay the royalties even if the end user doesn’t through a subscription. So it boils down to how many of those free users eventually become subscribers. 
    Spotify’s bi-annual ‘trial’ campaigns which offer a free (or $0.99-for-three-months) taste of its premium tier. These trials accounted for 27%, 23% and 20% of added premium subscribers in 2015, 2016 and 2017 respectively.
    watto_cobra
  • Reply 19 of 24
    lukeilukei Posts: 316member
    cropr said:
    irnchriz said:
    71 million paying subscribers and making a 1.5 BILLION dollar loss.  Ouch.
    Seeing these figures,  I am wondering how much Apple is making with 50% of the subscribers.   In this kind of business there is always some economy of scale so the cost per subscriber must be slightly higher for Apple.
    Apple pays More Per Stream. However it isn’t just a music service so is likely able to amortise cost of running service across a wider cost base. 
    watto_cobra1983
  • Reply 20 of 24
    19831983 Posts: 1,039member
    If I were a potential investor, seeing that 1.5 billion dollar net loss, would incline me to keep away! I also reckon that Apple Music is working at a loss too. Luckily for them Apple has other much more profitable streams of income to back it up.
    edited March 2 SpamSandwich
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