Spotify lays out ambitious plan for going public at investor day

16 Mar 2018194 Views

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

Spotify mobile app. Image: Hemin Xylan /Shutterstock

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

With a date in place to go public, what’s in store for the future of Spotify?

Spotify is officially going public via direct listing on 3 April, the company confirmed at its investor day presentation on 14 March.

Going public in a low-key way

The listing had been announced on 28 February without any date attached but head of investor relations at the Swedish company, Paul Vogel, confirmed the April date in New York. CEO Daniel Ek told investors present at the talk: “For us, going public has never been about the pomp or the circumstance of it all.

“So you won’t see us ringing any bell or throwing any parties, and, despite the enormous respect I have for the New York Stock Exchange in this process, I also won’t be on the floor doing any interviews.”

In a filing to US regulators, Spotify claimed it had a 42pc market share of the global streaming space in terms of revenue in 2016.

Ek confirmed that Spotify now has 71m global subscribers, 3,500 employees and hosts more than 35,000 tracks on its platform, but added that the firm is “just getting started”.

Avoiding an IPO

According to TechCrunch, Spotify explained it would be flouting the norm and avoiding a traditional IPO for several reasons:

  • It has no debt and positive free cash flow
  • Investors and employees will be able to sell on the public market without investors shorting a lock-up expiration
  • Bankers will not get preferred access
  • The public will decide the market price
  • The company will be able to show the facts about the business to everyone, not just people in private meetings.

Ek also tackled the issue of the company’s freemium model, which many musicians (including Taylor Swift) have criticised in the past. He pointed to the growth in music industry revenues in 2015 and 2016 being driven by streaming.

Spotify defending its business model

Variety reported that chief product officer Gustav Söderström outlined three major reasons why Spotify operates the way it does: “One: it reaches the millions of consumers who are still on the fence about paying for music, which brings them into our ecosystem. Two: it allows us to learn from the biggest possible group of music fans in the world.

“And three: once they have Spotify on their phone, car speaker and devices, music simply becomes a much bigger part of their lives, and the more they engage, the more likely they are to discover that music is an important part of their life worth paying for.”

Ek outlined a lofty goal for the company: to enable 1m people to make a living from music.

Head of artist relations, Troy Carter, spoke about Spotify for Artists, which helps musicians identify their audience. It is unlikely, though, that the animosity between musicians and the platform will die down any time in the near future.

What does the future hold?

Spotify remains unprofitable, but will be issuing financial projections on 26 March, according to the Financial TimesIt hopes to convince investors that it can translate its near-ubiquity and subscriber growth boost into a stable business.

Spotify CEO Barry McCarthy guided Netflix through its IPO in 2002 and drew comparisons between the two services at the presentation. He said Spotify would sacrifice margin for user growth.

While investors were impressed by the ability of the team to articulate the company mission, it will be the ultimate judgement of the market that counts for Spotify.

Spotify mobile app. Image: Hemin Xylan/Shutterstock

Ellen Tannam is a writer covering all manner of business and tech subjects

editorial@siliconrepublic.com