Can Spotify be saved by Wall Street?
Spotify, the popular streaming music service made its triumphant entry into Wall Street, a move that could save the company from a future economic collapse. With a price of $ 165.90 above the referential price, Spotify will also have to demonstrate its success in the most important world's stock market. Initially, Spotify closed at US $ 149, 12.9% higher than the reference price established by Wall Street, yet below its opening price. Spotify’s exit to the stock market, however, was somewhat unusual, as the company did not sell new shares to raise capital but sold its securities directly in the market.
Spofity, the most popular Swedish streaming music service on Internet, moves in a field still-to-be-explored field but undoubtedly, a very promising one especially regarding the telecommunications’ development. Currently, it’s more feasible to subscribe to this kind of service than to buy individual albums or songs.
The company so far has about 71 million subscribers and aims to reach 96 million by the end of the year. The funny thing is that Spotify in a short time has made a big difference with its closest competitors such as Apple (38 million of subscribers), Google and Amazon that offer similar services. Unlike its competition rivals, what’s also promising for Spotify’s values is that they are less rich.
Daniel Ek, Spotify founder and owner, believes although the company still does not generate profits good dividends can be gotten with its entrance in the stock market due to popular application’ potential and prestige. According to numbers presented by several risk analyst companies, Spotify in 2017 had US $ 378 million in operating losses and accumulates a deficit of US $ 3,000 million. According to its reports, during the last year their Premium users increased by 46%, that is, those who pay subscriptions. During the same period, the company reported revenues of US $ 5,000 million, which represents an increase of 38% compared to the previous year.
However, Spotify’s strategy is more than successful and according to Alan Williams, a specialist from the University of Massachusetts in music business, more than viable. The expert believes several of the companies that are listed on the stock exchange, especially in the technology sector, are companies that are not yet profitable but are clearly ready to be. On the other hand, Jonathan Taplin, specialist in digital entertainment at the University of Southern California, says that although Spotify has Premium subscribers it still cannot convince more people to pay for the service. According to estimates of the company for this date, more than 60% of users should have paid, but this has not happened. Currently, with the number of applications on Internet and the possibility of free song downloading makes the issue more difficult for Spotify, which obtains most of the revenues from subscriptions and advertising. The financial deficit of the company comes from the payment of music author copyrights and royalties to record labels.
However, the seasoned financial eyes of investors believe that Spotify launched its values at the right time because, like Netflix, they could create their own label in which several artists might want to be included. Daniel Ek does not want to create big expectations since there is still a long way to go with probably many obstacles that at the same time will help lay the foundations for new capabilities.
Wall Street has opened its salvation doors to Spotify seeing it as the future goldmine of entertainment via Internet and perhaps, one of the driving forces of the music industry revolution. Some investors believe that Spotify can, like Netflix, create a successful franchise that generates good profits. The company is valued at approximately US $ 23,000 million.