The Spotify IPO May Take A While Coming

  • The Spotify IPO could be delayed by its rumoured $500 million funding round.
  • Spotify's user growth continues to impress following its latest update.
  • Spotify's $7 billion valuations aren't steep, profitability holds the key.

 
Spotify might not be going public in 2015 after all. The online music streaming service is believed to be on the verge of raising a fresh round of funding. Now armed with an even bigger user base, Spotify valuations could also see a nice uptick. From funding to users and valuations, here’s a quick roundup of the updates on the Spotify IPO.

Spotify Could Be Raising $500 million

Reportedly, Spotify is raising $500 million. The online music streaming service is believed to have engaged Goldman Sachs to facilitate its latest round of funding. Goldman Sachs also happens to be one of the investors in a previous round of funding for Spotify.

According to the report, Spotify is in talks with investors who invest in companies which are headed towards an IPO. The report suggests that Spotify is willing to provide investors with “ratchet” provisions that guarantee returns for investors in the event of an Initial Public Offering.

Spotify IPO May Not Be A Hurried Affair

Spotify’s IPO might not be one of the tech IPOs in 2015 after all. Going by Spotify’s financials, the latest round of funding could delay the Spotify IPO for a year at the very least, and possibly for longer.

Spotify made a net loss of $72 million in 2013, and its losses have been reducing in percentage terms. The proceeds from a $500 million round of funding could last the company for a couple of years, potentially delaying a Spotify IPO by as much.

Spotify User Growth Continues To Impress

Spotify recently announced that it now has 60 million users, of which 15 million users are paid subscribers. Spotify has shown strong user growth over the last year.

Spotify’s user base stood at 40 million users with 10 million paid subscribers, not so long ago, in May 2014. The latest numbers represent a 50% jump in both, Spotify’s total user base, as well as Spotify’s paid subscribers, in less than a year.

Spotify Valuations

So far, Spotify has raised a total of $538 million in 7 rounds of funding since it was founded in mid-2006. The company’s previous round of funding was worth $250 million, and took place in November 2013, taking Spotify valuations to $4 billion.

Reports suggest that Spotify valuations could climb to as much as $7 billion, following its upcoming round of funding.

Based on 2013 revenue numbers, Spotify valuations imply a Price to Sales valuation of about 7.5. However, valuations aren’t as steep when you consider 2014 revenue projections. We projected Spotify’s revenue growth based on its 2014 growth rate (74% YoY), a much slower growth rate of 50% YoY, and the approximate mid-point of the two growth rates.

Based on these numbers, Spotify valuations could range from a Price to Sales ratio of 4 to 5, which isn’t too bad for tech IPO candidates.

YoY Growth % 50.0% 62.5% 74.0%
Spotify Revenue Projection for 2014 ($ billion) 1.40 1.51 1.62
Price to Sales Valuations 5.0 4.6 4.3

Valuations could however spike towards the Spotify IPO, which is when profitability will become a key deciding factor for investors. So far Spotify’s losses have been shrinking in percentage terms. However, Spotify pays out about 70% of its revenues to rights holders of the music. So, it remains to be seen how profitable Spotify can be.

Spotify IPO: Closing Thoughts

To sum up, the Spotify IPO could be delayed by about a year. The online music streaming service continues to make good progress in terms of user growth. Spotify valuations don’t appear to be very steep. If Spotify IPO valuations aren’t very much higher than its current valuations, and the company manages to become profitable, the Spotify IPO could be one to look forward to.

You can also see our coverage of upcoming tech IPOs for a roundup of the Etsy IPO, the Square IPO, the Pinterest IPO, the Dropbox IPO, the Airbnb IPO and the recently concluded Box IPO among others.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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