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Business News Digital
Is it time for more Spotify IPO rumours already? They come around so fast
By Andy Malt | Published on Thursday 21 July 2016
Spotify IPO, yeah? It’s happening next year. Sometime in the second half of it. For definites. Or so say not one, not two, but five sources who have spoken to Bloomberg.
While having five people eager to anonymously set out a timeline for Spotify’s long-awaited IPO might seem like a swell of confidence, it’s not an entirely new prediction. From next March, financiers who provided $1 billion in cash to Spotify earlier this year get ever bigger discounts on stock at the point of IPO, so it’s not in the company’s interest to delay flotation too long after that.
As previously reported, Spotify raised its most recent round of funding in March via debt financing, rather than selling off more stock. However, it’s believed that the terms of that finance allow lenders to convert the loans into stock at IPO at a discount of 20%. After a year, and every six months subsequently, that discount goes up 2.5%.
This would mean, if the IPO finally occurred in the fourth quarter of 2017, the discount would rise to 25%. Though most expected that to be the earliest date of the IPO – and therefore the minimum discount – even when March’s financing was first confirmed.
When the IPO happens, the question will be whether or not Spotify can match its very silly $8 billon valuation. The fact that the company is yet to turn a profit is a big issue there. An aggressive growth strategy means high costs, and the minimum guarantees it must pay labels and publishers mean that, while in theory it should get to keep about 30% of revenues after paying royalties, it is currently keeping something closer to 15%.
Aware that the high pay-outs to the music industry will be an issue for potential investors at the time of IPO, Spotify CEO Daniel Ek has – according to Bloomberg – been attempting to negotiate lower rates with the rightsholders. Though so far this has been unsuccessful.
The aggressive growth strategy, meanwhile, will have to continue for the foreseeable future, because attracting enough paying subscribers is the only way to make Spotify’s business model work long term. But how many paying subscribers is enough? Well, that’s the big question, isn’t it?
You could worry that however many paying subscribers are needed, there just aren’t that many people in the world willing to pay for a streaming music subscription. But that would single you out as a big old pessimist. And with the music industry now increasingly reliant on streaming royalties, there’s no room for pessimists around here. So fuck off Mr Pessimist. Go and stand behind Ms Spotify IPO Date Speculator. She’s much more interesting.
