You Can Lose Your Shirt on the Spotify IPO, or Do This Instead

Posted On April 5, 2018 2:13 pm


A Crowded Field That’s Getting More Crowded

Spotify has built a lot of buzz for its unique approach to the IPO market. Rather than use pricey bankers, the firm is listing its shares directly on the New York Stock Exchange.

It’s an interesting move, but it could make shares very volatile in the early days of trading. We just don’t know how the market will handle this kind of offering.

Spotify is trying to strike while the iron is hot. Its sales grew nearly 40% last year, to around $5 billion, but that still led to a $1.5 billion loss.

So the $1 billion stock offering only provides a lifeline for three or four quarters.

Spotify’s music streaming service has 71 million paying subscribers. Another 80 million opt for its free streaming service. As a comparison, Pandora has 74.7 million active users, down from 93 million last spring, and less than 6 million paid users.

To be clear, this is a crowded field, one that’s very challenging for firms that can’t pair music streaming in a bundle with other services. iHeartMedia Inc. (OTC: IHRTQ), for example, simply couldn’t grow large enough to turn a profit.

And it just filed for bankruptcy.

Other Spotify rivals include Amazon Music, Google Play Music, and Slacker Radio.

The Rise of the “Stealth” Streamer

Yet the greatest threat to Spotify is the world’s largest seller of digital content.

I’m talking about Apple Inc. (Nasdaq: AAPL), which operates the popular iTunes store and also serves as a platform for hundreds of top-selling apps.

Apple took its time to enter the streaming music field, ensuring that it got it right the first time – and it did so rather stealthily so that it didn’t make a splash with an inferior product. The efforts were aided by music industry legend Jimmy Iovine, who has been at the vanguard of music industry changes going back to his early work with John Lennon and a young Bruce Springsteen.

Apple Music launched in June 2015, offering not just curated playlists, but also 100 different around-the-clock live broadcasts.

By last year, the firm was adding 1 million net new subscribers each month. That’s when Apple delivered a smart upgrade as part of the new iOS 10 platform, bringing in great reviews for a much-improved interface.

At the recent SXSW Conference in Austin, Apple Senior Vice President of Internet Software and Services Eddy Cue said that the monthly growth rate has now spiked up to 2 million.

Sure, Apple’s nearly current 40 million user base lags Spotify, but that gap is quickly closing. And yes, Apple Music is as good a platform as Spotify just yet.

But as we saw with the 2017 redesign as part of the iOS 10 upgrade, Apple will keep improving the service until it is a top-in-class platform – and it will overtake Spotify soon.

Apple Music falls under its Internet Software and Services business. That was a $30 billion unit last year, and it’s on pace to swell to $42 billion by next year.

To beef up Apple Music’s sales, the firm recently bought Shazam for $400 million. That’s one of the largest acquisitions in the firm’s history, showing its level of seriousness here.

Shazam is behind the tech that makes it easy for users to ID new songs and buy them. Maybe you use it yourself – or have seen folks using it at a restaurant or mall. This feature plays to a built-in Apple advantages: the iPhone, its deluxe built-in music player, and the iTunes store.

*This has been a guest post by Money Morning*

 Related: Here’s What You Should Do With Your Facebook Stock Now. 

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