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Spotify now being valued at $16 billion by investors

By | Published on Thursday 28 September 2017

Spotify

As Spotify continues with its march towards becoming a public company on the New York Stock Exchange, sources cited by Reuters say that those involved in the private trading of shares in the streaming music firm are now valuing the business at $16 billion.

Which is $3 billion higher than earlier this year, and some reckon that the company’s valuation could top $20 billion by the time its shares start being publicly traded on Wall Street.

Reuters points out that when investors were valuing Spotify at about $13 billion earlier this year, that meant the business was being valued at just under four times its 2016 revenues. Or – to put it another way – at $13 billion more than its profits.

Some in the investment community note that Netflix is being valued at seven times its current revenues, and are therefore happy to put a higher price tag on Spotify too.

To date the streaming boom has been good news for the music rights sector, which sees the lion’s share of the money the streaming services generate. The services themselves are mainly loss-making at the moment, but the hope is that if and when they reach a certain scale – so a certain number of paying users – they will become profitable.

Of the global paid-for streaming services, only Spotify and Apple currently have the kind of momentum that suggests they could reach that scale, with Amazon another possible contender, probably dependent on how successful its Echo devices ultimately prove to be.

Quite how many paying subscribers Spotify needs to become viable long-term is unknown, because the cash value of each subscriber varies from country to country, and many users are on some sort of discount, either directly or via a mobile bundle.

Not everyone is convinced current sign-up rates can be maintained, though some in investment circles are optimistic about the potential for further growth in the streaming music sector at large, and with Spotify currently the definite market-leader, they are passing that optimism onto the Swedish firm.

Market dominance will also enable Spotify to ultimately secure better deals from the music industry, with the balance of power at the negotiating table likely to have shifted in the digital company’s favour by the time its recently negotiated multi-year licensing deals expire.

In terms of the Wall Street debut – via an unusual direct listing rather than a classic Initial Public Offering – sources are now expecting paperwork to be filed with US regulators by the end of the year for an actual stock exchange listing in the first half of 2018.



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