Spotify on Wednesday finally announced plans to go public. According to the company, it will list on the New York Stock Exchange (NYSE) and will trade under the ticker SPOT. Further, the music streaming service stated that its share clocked $132.50 on the private markets, giving it a valuation of over $23 billion based on ordinary shares outstanding as of February 22.
In a statement, Spotify’s CEO and co-founder, Daniel Ek, said: “While streaming has changed the way many people access music, we believe there is an untapped global audience with significant growth potential.”
Ek also talked about Facebook and YouTube’s business model, saying that these companies are proof that internet firms can reach a “global scale.” Spotify’s service is available in 61 countries, and the company hopes to expand further into the mature markets, Ek said citing data that an average American listens to music for 32 hours each week.
“We set out to reimagine the music industry and to provide a better way for both artists and consumers to benefit from the digital transformation of the music industry,” the company said, adding that Spotify believes that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans.
Spotify, it its filing with the U.S. regulators, said it has a user base of 159 million, including 71 million paying subscribers, two times bigger than the closest competitor Apple Music (launched in 2015). As per the filing, the streaming service posted revenue of $2.37 billion in 2015, $3.6 billion in 2016 and $4.99 billion in 2017. Further, the company informs that its paid subscribers are growing at a rate of 46% year-over-year, whereas monthly users surged 29% year-over-year.
For 2017, the company incurred a loss of $1.5 billion including $1 billion from a non-recurring expense due to convertible notes from a transaction with Tencent in Dec. 2017. Their operating loss came in at $461.3 million last year, while in 2016 it was $425.9 million.
However, according to the Wall Street Journal, Spotify has a positive free cash flow partially due to the upfront subscription fees, and therefore, the company does not have an obligation to raise cash. The subscription fee is deposited in the company’s bank account, but is not immediately reflected on its profit-and-loss statement.
Apart from the losses, Spotify has more challenges to deal with, including the risk from fluctuating and unpredictable royalty rates that it pays to the music labels, songwriters and publishers.
Paul Resnikoff, publisher of the Digital Music News blog, believes Spotify can improve its financial numbers on the backs of 100 million subscribers. Resnikoff notes that 73% of every subscription fee goes to the labels, artists and music publishers leaving only 27% for overhead, salaries and costs of doing business.
Ek noted that Spotify is moving towards democratizing the industry and connecting everyone across the world, in a shared culture. Further, the CEO added that something that debuted as an application and has grown into a platform is advancing towards becoming a global network that recognizes and nurtures the independent relationships between producers, publishers, creators, fans, labels and everyone in between.