There’s no narrative the tech industry likes quite as much as a good revolutionary tale in which a startup pursues a strategy that topples an established order. Such a mythology is now being constructed around the upcoming Spotify IPO.
It goes like this: Spotify is doing an end run around investment banks by listing its shares directly on the stock market. This is supposed to result in fewer fees for impoverished investment banks and new freedom for tech companies. That was the vibe of a story by the Wall Street Journal this week: “Spotify Disrupted the Music World, Now It’s Doing the Same to Wall Street.”
The reality is that by taking this route Spotify is pursuing a risky strategy. And it’s likely only doing so because it was backed into a corner by its investors and by private fundraising that led to a dangerously high valuation of $19 billion.
“This is not a story of problems in the IPO market,” according to Kathleen Smith, a principal at Renaissance Capital and manager of IPO ETFs. “It’s a problem with Spotify’s valuation.”
With an impending IPO finally on the horizon and copyright-infringement lawsuits worth over $1 billion stacking up, the streaming leader has plenty to deal with in the new year.
Spotify has established itself as the leader in on-demand audio, with 70 million paid subscribers worldwide. But the company now faces a series of hurdles as it barrels into 2018, with a long-awaited initial public offering on the horizon for the first quarter and several copyright-infringement lawsuits that could cost the company dearly — and hang a dark cloud of uncertainty over its head.
Is streaming music a good business?
Streaming has taken over as the dominant music format and is attributed with revitalizing the moribund business of record labels big and small. But for streaming companies, the answer is not as clear-cut.
Stuart Dredge over at Music Ally is reporting Spotify’s losses widened to $600 million last year. Read his article here. I just wanted to point out that some significant portion of these widening losses are due to currency swings. March 29th 2016 Spotify announced a $1 billion US denominated convertible debt deal with […]
Last year when Spotify took on $1 billion in debt, we reported that it did so under terms that forced rate increases if it failed to IPO. Now, those terms could force Spotify to IPO quickly, which leaves the music industry in a strong negotiating position.
We think that a Spotify IPO will require very frothy market conditions. Indicators will be higher oil prices (currently low), steady interest rates (currently under upward pressure in the US), high levels of “deals” (collapsing), and higher valuation for tech stocks (currently crashing led by Apple).
The Spotify IPO Watch Signal for May 2015 is RED–no IPO in the next six months and increased risk of Spotify defaulting on its $1 billion of convertible debt.
Of the $5 trillion in transactions that were announced in 2015, almost 10 percent — $504 billion — have since been terminated. Wednesday was especially bad for bankers as two mergers valued at a combined $21 billion collapsed.
The latest cancelled deals mean 2015 has been stripped of its title as the biggest year for dealmaking, dropping to $4.06 trillion compared with 2007’s $4.09 trillion.
The companies and their bankers can blame themselves for some of the failures, said Ira Gorsky, an analyst with Jersey City, New Jersey-based Elevation LLC. Deals have grown so large, and in already consolidated industries, as to provoke the wrath of aggressive antitrust enforcers.
Read it on Bloomberg: Wall Street’s Dealmaking Goes From Boom to Bust in a Few Months
The Bank of England warned Thursday of big risks to Britain’s economy should voters opt in a June referendum to leave the European Union — a stark assessment from an institution known for being independent of political campaigns.
Members of the Monetary Policy committee said in a statement after deciding to keep interest rates on hold that a vote to leave the EU could prompt households and firms to delay spending, lowering demand for labor and causing unemployment to rise.
Read it on New York Times: Bank of England Warns About Risks of Exit From E.U.