Spotify is a company that has been burdened with issues particularly in the latter half of its existence. Deciding to go public on Tuesday, 3rd of April, 2018, via a floatation on the New York Stock Exchange market means that the company value could potentially be between $20 billion and $25 billion (N7.2trillion and N9 trillion) according to analytics. As much as this sounds like great news, what does this floatation really mean for the company?
The 12-year-old music streaming business launched as a free-to-use service funded by advertisements. In that time, Spotify has been able to gather 157 million customers and has managed to covert 72 million of that number into paying users of their premium service. However, Spotify has never made any profit and with the rise of the likes of Apple and Amazon as competitors, this may become an issue for potential investors who want to invest in the firm.
Another challenge they might have lies within the nature of the float. Unlike other companies who handle this process with the involvement of investment bankers, Spotify is not issuing any new stock. Instead, it is selling shares currently help by its private investors and although this may save them some money, it ultimately makes the entire process volatile. In addition, Spotify made a commitment to their original investors over a decade ago that they will be able to profit from their investment and this seems like the perfect opportunity. However, this also means that pressure will increase on the management and performance of the company as investors will expect swift progress.
Finally, as much as prices have been estimated for the company’s worth after this floatation, no one really knows how much it will be worth in reality. This is because in its 12 years of existence, the company costs are far greater than its revenues and as much as that gap is narrowing, there is no assurance that Spotify can become truly profitable.