Because it is a private company, you can’t buy Spotify stock until it has an IPO. It now looks like investors are going to have to wait until at least 2017 before that happens and perhaps even longer.
Spotify’s valuation is between $8 billion and $8.5 billion dollars after it raised more $1 billion in debt in early 2016 to go along with over $1 billion in equity funding. That is the money the company is currently using to run the business. In August 2016 it is being reported that Spotify has about 39 million paid subscribers and over 100 million users in total. That number, if true, would indicate it probably has at least double the number of paid subscribers that Apple does.
Buy Spotify Stock In 2017 If It Has An IPO
The earliest you will be able to buy stock in Spotify will probably be sometime in the second half 2017. If the company can iron out all its problems, it will decide to go pubic which will open up the doors for individual investors to buy its stock on one of the American exchanges. However, there are some roadblocks before that can happen.
- Spotify has been in existence for 10 years and has never made a profit. The good news is that revenue keeps going up and the hope is that eventually revenue will exceed expenses. But since the music streaming business model is so new and untested, it has yet to be determined if any music service (Apple Music, Google Play Music, Amazon Music, Pandora, Spotify) can make a profit. This unanswered question is something that might ultimately lower the perceived value of Spotify when it tries to IPO.
- As of August 2016, Spotify no longer has contracts with any of the big three music labels (Universal Music Group, Warner Music Group, and Sony Music Entertainment). It is operating as is under expired contracts but it needs to get long term deals signed before any IPO can take place. The problem is that these music labels want to raise the percentage of revenue paid to them from Spotify’s current 55% up to 58% which is what Apple Music is currently paying.
- Spotify’s long term challenge is to compete against its deeper pocketed competitors which are Apple Music, Google Play Music, and Amazon Prime Music. In each case those three rivals are small parts of much bigger businesses that can afford to make less money than Spotify. In fact, it might be true that those three could even afford to lose money indefinitely which would put tremendous pressure on Spotify because it is a stand alone business that needs to become profitable if it is going to have an IPO.
Spotify Continues To Gain Users At All Costs
Spotify’s fate depends on whether it can add enough users to become big enough that it can’t fail. In other words the more users it has, the more it will gain bargaining power and pricing power which will help it combat its main rivals. Most people resist changing music services because it is usually hard (or impossible) to import playlists from one service to another. Therefore, the more users Spotify can add to its numbers bodes well for its chances for survival, no matter what its competitors do to thwart it.
Spotify is clearly working hard toward an IPO and wants to get listed on an exchange as quickly as possible but the IPO is still most likely a year or more away. A lot can happen in that time and there is a possibility that at some date in the future Spotify could internally determine that selling to a highest bidder is its best option. If its current business model doesn’t bring it the necessary profitability, it might decide to sell itself to a bigger player. Were that to ever happen then investors would never be able to buy Spotify stock and only be able to buy the stock of the company that purchased it.