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What we learnt after Spotify filed to go public

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Spotify, which filed its strategies to go public recently on New York Stock exchange, said it has paid more than $9.7 billion in royalties to artists, music labels and publishers since it launched in 2006. The streaming giant had 71 million paying subscribers and 159 million monthly active listeners as of December 2017 which makes it the largest streaming music service across the world by far.

Spotify will be offering a direct listing which means that its shares can be operated on the open market sooner with a more predictable IPO, as Spotify doesn’t intend to raise a large amount of capital with its IPO. According to CNBC, the price of Spotify shares traded on private markets indicate the company could be worth as much as $23 billion.

The filing gives us one of the best expressions at Spotify’s financial records, with the company posting revenue last year of €4,090 million (nearly $5 billion) and a net loss of -€1,235 million (or $1.5 billion) for the same period. Paid subscribers for the streaming giant grew 46 percent last year, while active users are up by 29 percent. The prospectus’s updated numbers show that the company posted a cumulative pre-tax loss of just over €2bn across 2015, 2016 and 2017. It’s worth pointing out that Spotify’s operating loss didn’t grow dramatically last year (-€378m, up from -€349m in the prior 12 months), but that the firm was hit by a harsh finance cost in 2017 of over a billion US dollars (€974m). By comparison, Apple Music still only has 36 million paid subscribers, although it’s predicted to potentially overtake Spotify by this summer.

Spotify IPO prospectus

Spotify’s average revenue per Premium user has been falling, and the company says that family plans are a big reason why. When up to six people pack onto a $15-a-month combined plan, they’re all counted as users, but they’re paying far less than they would have for individual memberships that cost $10 a month. Spotify’s average revenue per Premium user dropped to €5.32 last year, from €6.20 the year before.

Spotify IPO prospectus

The company openly warns would-be shareholders about its difficulty with profits in its ‘risk factor’ rundown within the prospectus. According to form F-1 registration statement, ‘We have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to be profitable, or to generate positive cash flow on a sustained basis. In addition, our revenue growth rate may decline.’

 

It adds: ‘Since our inception in April 2006, we have incurred significant operating losses and as of December 31, 2017, had an accumulated deficit of €(2,427) million.’

Spotify IPO prospectus

Read the full report here.

Despite its success over the years as one of the earliest and most promising music streaming businesses, Spotify has struggled to turn a profit given razor-thin margins of streaming, with most of its revenue keen to paying licensing fees to music publishers. It has recently run into some problems with music publishing companies, including a $1.6 billion lawsuit from Wixen Music Publishing that claimed it was using thousands of its songs illegally.

Spotify has at times experimented in other arenas, like original video content, but it has failed to occur any substantial revenue streams beyond the monthly membership fee it extracts from paying subscribers and the ad revenue it earns from free listeners.

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Abhishek Singh

Author: Abhishek Singh

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