The latest valuation estimates will be music to the Swedish streaming service’s ears.
According to a report from Reuters, private trades in shares from the market-leading music streaming platform Spotify are valuing it at about $16bn, around $3bn higher than similar trades up until June of this year.
Strong subscription figures and high demand for shares mean that Spotify could end up being worth at least $20bn when it goes public.
Spotify sees strong user growth
The share market prior to going public means that employees, founders and investors in private companies such as Spotify and Uber can obtain some of the paper wealth, with some early investors waiting for a payout now selling their shares, too.
The company has more than 140m active users, and is apparently aiming to file intentions to float at the end of this year in order to list in the first half of 2018. Since 2012, Spotify has increased its paying users from 5m to more than 60m.
This high valuation could mean Spotify would have a stronger position in licensing negotiations with major record labels, but could also see management under pressure to deliver great results once the company goes public.
Avoiding an IPO
Rather than going for an IPO, the streaming service is contemplating a direct listing.
This will allow investors to sell shares without raising money from new ones, and it will also save millions in underwriting fees from investment banks.
However, David Golden wrote in CNBC that the direct listing could be a risk, as underwriters provide after-market liquidity in shares so people can trade them easily without moving the price, increasing market efficiency.
It is also difficult to figure out just how many subscribers Spotify will need to become stable in the long term, as subscription rates vary depending on the territory, and a lot of users have Premium accounts as part of a mobile data bundle deal or a heavily discounted rate.