Spotify in the Spotlight – Company Gets Ready to go Public

Spotify, founded in 2006, has just filed for their company to go public. Different from most initial public offerings, the Spotify stock will go straight to the NYSE with no team researching what the initial price offering should be. The risk associated with the stock could be very high since it could take wallstreet time to understand what the company should be trading at. As quoted from the filing, “prior to the opening trade, there will not be a price at which underwriters initially sold ordinary shares to the public as there would be in an underwritten initial public offering. This lack of an initial public offering price could impact the range of buy and sell orders collected by the NYSE from various broker-dealers. Consequently, the public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly.”

How does Spotify stack up against Competition?

Spotify is up against tough competitors offering similar music services: Pandora, Rhapsody,Soundcloud, and not to mention the new and emerging Apple Music. Impressively, Spotify leads the industry in monthly subscribers with 71 million, the next closest is Apple Music with 36 million.  Although Spotify is much farther ahead, it is important to mention that Spotify was founded in 2006, while Apple Music was founded in mid 2015. Spotify has had a 9 year head start and Apple already has half the amount of subscribers they do.not only does Apple offer a quality service, but they also have the branding and marketing to heavily promote there service At this point in time, Apple’s success and growing popularity is one of the companies biggest threats.

How much money does Spotify make?

According to their F1 they have recorded increasing revenues for the past three years. In 2015 revenue was 2.37 billion, in 2016 3.6 billion, and in 2017 4.99 billion. However, the company has lost money the past three years as well. In 2015 the company recorded a operating loss of 290 million, in 2016 a operating loss of 431 million, and in 2017 a operating loss of 465 million.(All numbers recorded are in USD)

Our View: While Spotify is one of the leaders in the industry, we dont believe that there is anything separating them from the competition. From what we can see, the service that they provide doesn’t blow away the competitors. This is a problem for Spotify because it leaves little room to raise prices because there are endless alternatives for the consumer to go to for a cheaper price. This would opens the door for other music streaming services such as Pandora and Apple music to take some of their market share.

Additionally, with the large user base that Spotify currently has, they are still losing large amounts of money. Although Spotify is the most popular streaming service, in order for them to become profitable they will need to decrease expenses by renegotiating the amount of money they pay to creators or increase the cost of their premium membership. However, Increasing the cost of the membership is a slippery slope as it could turn customers away. Additionally, Spotify has very little leverage negotiating with music creators as they rely on their new content- if the company doesn’t have the latest popular song, the consumer will not hesitate to take themselves to a different platform.

Will Spotify be able to cut down their expenses while maintaining their market share to turn a profit?

Let us know your thoughts in the comments below!

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Could the Most Hated Snapchat Update Actually Boost the Companies Sales?

Although the snapchat update has received a lot of hate, could it still be helping their sales?

Recently, Snapchat is under fire as the response to their update has been anything but positive. With all the negative user reviews, one might  think that Snap would consider retracing its steps and return to its old platform. However, the company has shown no signs of this retraction as Ceo and Founder Evan Spiegel said, “We’re excited about what we’re seeing so far,” and continues stating “The best part is that even some of the complaints we’re seeing reinforce the philosophy [behind the design].” As you can clearly see, he completely disregarded the hate the update has been receiving and the 1.2 million people that have signed the petition to change Snapchat back to its prior form.

It leaves people asking the question, “Why does Snap keep the new update if no one likes it?”

The answer to this question: revenue.

Although Snapchat currently has 187 million daily users, it is and has been losing money for years.

Snapchat’s stock has finally started to rally as it posted record breaking fourth quarter earnings on February 6, 2018, of 285,693 million dollars, however, the company still lost 28 cents per share or 159 million dollars. Despite the hate regarding the new update, the update itself looks like it could continue the uptrend in Snap’s sales.

A lot of people have been outraged with the way Snapchat’s signature story feature is now positioned on the left side of the app which makes it much harder to rewatch stories. Personally, we don’t like it either, but will it make us and our friends stop using the app? No! The reason being is our streaks are way too valuable to throw away because of an update.

The new update now leads the consumer to the right side of the app, where the stories used to be. This whole side of the app is now dedicated to the discover section. This is where Snapchat makes most of their revenue, as there is a lot of sponsored content from companies, and many ads in between the content. Additionally, a slight but important new feature to the app is that when a particular story or headline is over, it doesn’t take you back to to the displayed section of news, instead, it goes right to the next popular story, headline, celebrity sighting, or sporting event, keeping the user engaged, and more importantly presenting them with more ads.

How will Snapchat’s revenue be affected by the new update?

We believe the new Snapchat update was designed as a way to increase ad revenue. While increasing ad revenue, this new update has received an echoing negative response from many Snapchat users. Will this lead to a significant drop in Snapchat’s huge daily user base? If so, will the new revenue model in the update make up for the lost users?

Let us know your thoughts on this bold move from Snap.

Disclaimer: Do not invest your own money without doing your own research, our content is not meant to convince you to buy or sell a stock, but simply to share ideas and unique viewpoints.