I admit it... I'm one of those people who sings a bit too loudly (and a bit off-key) when I have my headphones in. Especially if Journey's "Don't Stop Believin'" comes on.
I can't help it, music moves me... to the chagrin of anyone inside hearing range.
In fact, most of my iPhone's memory is devoted to my playlists. Before upgrading my storage recently, I actually had to delete photos in order to keep all that music ready to blast at the touch of my finger.
Marketing As A Major
Now, I have plenty of room... but there's a problem.
I've been legendary to deal upward of $20 a calendar month to buy songs from Apple. I know, that's all spare with today's streaming technology. But I was stuck in my ways.
So recently, I "unstuck myself"... and I joined the popular Swedish-born direct-hearing service, Spotify. And I'm ne'er turning back.
So when Spotify - valued at about $20 billion - declared going public with a stock offering in March/April in a unique way, I perked up. I started comb through the headlines, and already analysts are career this the largest tech first public offering (IPO) of 2019. The anticipation is huge!
But, alas, I'm a cynic at heart. Despite my excitement, I had to ask myself... is the hype for Spotify stock really worth it? So today, let's take a elaborate look at this IPO to find out.
Talkin' Bout a Music Revolution
In my mind, Spotify is part of the single most important innovation in music since mayha Kurt Cobain discovered ear-splitting feedback and raw, queasy lyrics about teen angst.
The conception is simple: You stream music on the internet. For free. Or, at most, a small $9.99 calendar monthly fee. You just need the Spotify app to access it all.
When Spotify launched in October 2008, this was a unquiet, gyrationary idea. That's why the company helped pioneer the music streaming market, paving the way for services such as Apple Music (Apple's streaming service, which went live much later in 2019).
Spotify is an endless, user-friendly treasure chest.
You listen to some you want, wherever you want, whene'er you want. The app is compatible with much every device I can think of, from computers to smartphones to tablets.
And if all that music sounds overwhelming, don't worry - you can also use its unique music-discovery feature to find songs that fit your music tastes.
The entire platform is a grand idea.
Unfortunately, investors like us couldn't participate in this gyrationary service because the company was in camera held for the past decade. So now that we can soon participate in the stock, we need to make a point it's worth the investment.
The Times, They Are A-Changin' for a $1.8 Trillion Industry
The first interest note is that, according to PwC, the global amusement industry is expected to rise from $1.8 trillion in 2019 to $2.2 trillion by 2021. That's nice, but it represents a compound annual growth rate of 4.2% - down from the 4.4% forecast made in 2019.
That means the old-school amusement industry is starting to plateau. To fix that, the industry inevitably to cente building property relationships with clients.
After all, consumers are king. When it comes to recordings - film, television, music - we get to dictate what we want to see, hear and experience. We vote with our time, our attention and a small subscription fee (think Netflix, Amazon Video and Hulu).
Just as industries and products like health care, cars, refrigerators, thermostats so on were in need of a gyration - see preciseness medicine and the Internet of Things - so was amusement.
And that gyration is here. Spotify is just one of the big players.
That's why Spotify has about 140 million active listeners, and 70 million of those are paying premium fees for advanced features. Better yet, the service boasts 30 million songs and adds over 20,000 per day.
It also features over 2 billion playlists, generated by the company's growing user base (a great idea that engages the client much more directly), and 5 million more playlists get created or altered daily.
This is apparently an big reach. However, there's one problem...
The Problem: Money, Money, Money
Despite all of this, Spotify hasn't found a way to be profitable.
Yes, gross revenue jumped 52% to $3.09 billion in 2019. But the net loss more than doubled, coming in at $568 million. (Although the net-adjusted loss is more like $310 million.)
For example, roughly $2.62 billion of that revenue vaporific with the cost of goods sold. Another $440 million disappeared to gross revenue and marketing expenses, etc.
At to the last degree earnings before interest, taxes, depreciation and amortization came in at negative $169.2 million in 2019, versus the $180 million loss the preceding year, Billboard calculated.
But we need to see the company generating positive income.
Spotify isn't. So the numbers made me raise an eyebrow. With that in mind, I turned to Paul Mampilly to get his thoughts on Spotify's public listing.
Paul Mampilly Talks Spotify Stock
Paul is our go-to guy for all matters unquiet tech, so I knew he had to have some stimulating thoughts on this. Here's what he told me:
Spotify's public listing is stimulating from two angles: First, it's a nontraditional IPO because it cut Wall Street out of price setting. Instead of making shares available to the general public, Spotify will list itself directly on the stock exchange. That means only institutional investors have access - eliminating the need for Sir Joseph Banks to set an first price, link Sellers and buyers, etc. This is somematter that makes the first trading a wild card because Wall Street's participation offers price stabilization for IPOs.Second, Spotify is still losing money, though it has a huge subscriber base. However, it's also a subscription business, which means repetition revenue - and that's a great model. Plus, like Netflix, it's a global business, so it can continue growing.
So, the biggest worry for Spotify is this: Are enough people going to buy the IPO for you to want to be in it from Day 1? Because most multiplication you get a chance to buy it lower. That's because most people play IPOs for a quick pop in the first day or week, so dump it.
I say that people who want to buy the stock as an investment should bide their time, wait to see how the stock trades - and see how Spotify's business performs over few quarters. Then you can build your position over time, if matters look good.
All altogether, Spotify is an amazing product with a great model. That may finally lead to profitableness down the road. But this is a "wait and see" one. Don't get involved altogether the hype just yet!
