By opting for a direct-listing in April, the Swedish music-streaming giant asserted its independence and confidence in its business model. The entry onto the stock market is also likely to give Spotify a better chance of withstanding the upcoming onslaught from rivals such as Apple and Amazon.
Will music be Europe’s saviour? Social networks, movies, transportation... the largest digital-age unicorns are US based. Not so music. When the world's leading music-on-demand brand joined the Nasdaq last spring, and for once Europe outdid the US. The operation valued Daniel Ek's startup at around 26.5 billion dollars: a crowning achievement for a company set up less than a decade ago.
Spotify grew dramatically from the outset. It has almost doubled its paid subscriptions every year to reach 81 million in mid-2018. Often compared to Netflix, Spotify can however also boast that it has widened the gap to competitors. While Netflix dukes it out with Amazon and HBO platforms, Spotify now has almost double the subscribers of its leading competitor, Apple Music. And the bonus is that this introduction has allowed Spotify to free itself from commitments made during previous financing operations.
However, it is less the startup’s Nasdaq IPO itself than the disruptive method it used when launching it that marked hearts and minds. Backed by his chief financial officer, Barry McCarthy, formerly of Netflix, Daniel Ek chose a direct listing - taking advantage of the fact that Spotify did not need to raise funds. The team spared themselves the job of touring the banks to pre-sell shares, believing that the Spotify brand was powerful enough to attract investors on its own. In the end it resulted in serious savings for the streaming specialist. It probably cost $50 million as against more than $100 million for a conventional listing.
Lack of structural profitability
The operation was not risk-free, however. Analysts promised stock market volatility and no lock-up was envisaged. Yet the share price changed little during initial trading, and according to the American site Recode was "boring" to follow. The market does not seem to hold the increase in losses against Spotify. These rose from around 600 million dollars in 2016 to more than twice that in 2017. Investor optimism is driven by the uptick in the number of paid subscriptions, the main yardstick in this sector. This year Spotify is slated to have 96 million paying users compared to 71 million at the end of 2017. The Swedes will need them to be in a strong enough position to fend off the competition, which is gathering force. Apple Music has clearly not thrown in the towel, and Google recently entered the music-streaming market with Youtube Music. And this latest competitor, although arriving late to the market, has very full pockets indeed.
By Florent Detroy
Market share in the music streaming industry, mid-2018:
Apple Music: 19%
Tencent Music: 8%