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Spotify Revenue (Euros) 2017 4.09 billion 2016 2.95 billion 2015 1.94 billion Net Loss (Euros) 2017 1.2 billion 2016 539 million Impressive revenue growt

Spotify Revenue (Euros) 2017 4.09 billion 2016 2.95 billion 2015 1.94 billion Net Loss (Euros) 2017 1.2 billion 2016 539 million Impressive revenue growth, but I can't understand the valuation given the losses. I love their product though.

zer00eyz 9y ago
The value, well it is "investor demand" The going public part -- well that was foretold with their last round of financing (it was a condition) and this was a strange way to do it. You may love the product but will it last is the question. If I were going to bet I would say that 5 years down the road someone buys it for pennies on the dollar or it goes bankrupt due to toxic debt. I wonder what the short position is on it.
- TAForObvReasons 9y ago
  > this was a strange way to do it. This was done partially because the company itself isn't raising money. If the company executives believed they would need a large cash cushion, they would have tried to raise some cash in the deal, so they must believe they can reverse course before the cash crunch
  - zer00eyz 9y ago
    It wasn't about raising money - they had their hand forced by the last round of debt/equity deal that they did: https://www.recode.net/2018/1/3/16847786/spotify-tpg-tencent-debt-dragoneer-ipo-music-streaming https://www.recode.net/2018/1/3/16847786/spotify-tpg-tencent... Not that it is a great article but honestly that looks like a very messy transaction. It also looks like Spotify got the raw end of that deal. The whole thing is just crazy and I'm not sure how anyone can make sense of those numbers.
- ikeaman 9y ago
  I know they didn't go through a traditional IPO model, but from what I understand there's always a certain amount of days imposed by the SEC to restrict short selling on novel securities.
  - myroon5 9y ago
    Found this idea interesting and looked into it and found this: https://www.investopedia.com/ask/answers/05/062905.asp https://www.investopedia.com/ask/answers/05/062905.asp Looks like it's allowed, but difficult
gorbachev 9y ago
Also if I remember correctly, an increasing share of the losses are financing costs. They're not operating as a sustainable business at this point. They will most likely need the VCs to continue throwing money at them. Who knows, maybe it'll work. I personally wouldn't bet on it though.
ttul 9y ago
30 / 4 = about 7x ARR. That's a very high SaaS valuation multiple, but not ridiculous vs comparables like loss-making Salesforce (9-10x). Spotify presumably is being valued like this because investors are betting that their strong customer growth will allow them to find new ways of generating profits - such as signing their own artists directly to cut out license fees, much like how Netflix started funding their own shows. If customers were unsatisfied with Spotify, then their churn would be higher - for instance defecting to Apple Music, which by many measures is "better" because of Apple's heft and reach into their devices.
bln_wgc 9y ago
Should be noted that those are gross revenue numbers... ~80% of their gross revenue goes to the record companies and that percentage is constant as Spotify grows (i.e., there's no economies of scale to it). It's similar to Uber, who had $37 billion gross revenue for 2017, but pays out 80% of that in driver commissions and additional subsidies to riders and drivers. Seems like a problem for both industries; they'd need to hit insane scale (hard in music streaming for Spotify to 5x) or take control of the content/supply base to hold down costs.

zer00eyz 9y ago

The value, well it is "investor demand" The going public part -- well that was foretold with their last round of financing (it was a condition) and this was a strange way to do it. You may love the product but will it last is the question. If I were going to bet I would say that 5 years down the road someone buys it for pennies on the dollar or it goes bankrupt due to toxic debt. I wonder what the short position is on it.

TAForObvReasons 9y ago
> this was a strange way to do it. This was done partially because the company itself isn't raising money. If the company executives believed they would need a large cash cushion, they would have tried to raise some cash in the deal, so they must believe they can reverse course before the cash crunch
- zer00eyz 9y ago
  It wasn't about raising money - they had their hand forced by the last round of debt/equity deal that they did: https://www.recode.net/2018/1/3/16847786/spotify-tpg-tencent-debt-dragoneer-ipo-music-streaming https://www.recode.net/2018/1/3/16847786/spotify-tpg-tencent... Not that it is a great article but honestly that looks like a very messy transaction. It also looks like Spotify got the raw end of that deal. The whole thing is just crazy and I'm not sure how anyone can make sense of those numbers.
ikeaman 9y ago
I know they didn't go through a traditional IPO model, but from what I understand there's always a certain amount of days imposed by the SEC to restrict short selling on novel securities.
- myroon5 9y ago
  Found this idea interesting and looked into it and found this: https://www.investopedia.com/ask/answers/05/062905.asp https://www.investopedia.com/ask/answers/05/062905.asp Looks like it's allowed, but difficult

gorbachev 9y ago

Also if I remember correctly, an increasing share of the losses are financing costs. They're not operating as a sustainable business at this point. They will most likely need the VCs to continue throwing money at them. Who knows, maybe it'll work. I personally wouldn't bet on it though.

ttul 9y ago

30 / 4 = about 7x ARR. That's a very high SaaS valuation multiple, but not ridiculous vs comparables like loss-making Salesforce (9-10x). Spotify presumably is being valued like this because investors are betting that their strong customer growth will allow them to find new ways of generating profits - such as signing their own artists directly to cut out license fees, much like how Netflix started funding their own shows. If customers were unsatisfied with Spotify, then their churn would be higher - for instance defecting to Apple Music, which by many measures is "better" because of Apple's heft and reach into their devices.

bln_wgc 9y ago

Should be noted that those are gross revenue numbers... ~80% of their gross revenue goes to the record companies and that percentage is constant as Spotify grows (i.e., there's no economies of scale to it). It's similar to Uber, who had $37 billion gross revenue for 2017, but pays out 80% of that in driver commissions and additional subsidies to riders and drivers. Seems like a problem for both industries; they'd need to hit insane scale (hard in music streaming for Spotify to 5x) or take control of the content/supply base to hold down costs.