Spotify Eyeing Direct Listing As Valuation Boosted

Reports indicate that the U.S. Securities and Exchange Commission has held meetings with Spotify concerning the online music streaming company’s potential public listing. According to sources the SEC asked for more information on the plan by Spotify to do a direct listing rather than an initial public offering.

Major tech firms such as Google and Facebook have taken the IPO route and which is an extensive process involving underwriters and lots of procedural hoops. In a direct listing, on the other hand, companies place their shares in an open market and individual sellers can purchase or dispose of. While a direct listing could result in more volatility, it comes with lower overheads and fewer procedural hoops.

Small firms

Traditionally direct listings are favored by small firms and according to the latest valuation figures Spotify is not in that league. Sources say that private trades in the shares of the online music streaming company are valuing Spotify at approximately $16 billion. This is an increase of $3 billion when a similar valuation was done three months ago. This is an indication of rising interest in the Swedish company. It also reflects the growing user base of Spotify. Currently it is estimated that the number of active users of Spotify is over 140 million across the world.

An investor survey conducted by GP Bullhound an advisory firm in the technology investment sector projected that Spotify could be valued at $50 billion in the next couple of years. One of the reasons given for this optimism was the fact that the company is currently the music streaming leader across the globe. Five years ago the number of paying users was five million but that number has now grown to 60 million currently.

Path to profitability

Though net losses doubled in 2016 to reach a figure of $600 million, revenues have also increased by over 50% to reach a figure of $3.4 billion and this has been seen by some as an indication that the company is on a path to profitability.

Spotify would benefit from a high equity valuation since this would allow the online music streaming firm to sustain its market leadership position in the face of rivals that include Amazon Music and Apple Music. Such a valuation would also assist Spotify to diversify into other similar businesses such as video streaming or expand into new markets. This is important since Spotify lacks an ecosystem that its competitors thrive on.

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