Facebook IPO Issues May Deter Vevo and Spotify
Facebook's problematic IPO has not only resulted in investor lawsuits and questions about the Nasdaq, it could have killed or postponed the IPO aspirations of Vevo and Spotify. Both companies have IPO aspirations, according to reports. And it makes sense one or the other would eventually consider going to the public markets.
But the timing might not be right. A source told the New York Post that Vevo should hold off on IPO aspirations in the wake of Facebook's IPO, and the same came be inferred about a Spotify IPO, too. The article follows up an earlier Post report that Vevo had hired investment bank Allen & Co to help it seek new funding.
"A jump into the shark-infested IPO waters right now would destroy all the momentum [Vevo] has created for itself," a knowledgeable insider told the Post. "[Vevo] has gone from a virtual unknown to a heavyweight player as music videos are, for some reason, in demand like it's the '80s. They only need to look at the disaster going on right before their eyes at Facebook. An IPO just doesn't make sense right now -- or in the near future."
That's a fair conclusion, although the problems with Facebook's IPO stem from factors that would not arise with a Vevo or Spotify IPO: Nasdaq's poor handling of the IPO, the possibility that Facebook shared material information only with its underwriters and the possibility the IPO's underwriters shared analysts' downgrade only with select investors before the IPO. Facebook itself is facing lawsuits that allege its SEC filings contain untrue statements or omitted material facts. These are issues that arose from a level of demand very few IPOs could ever hope to attain.
Vevo and Spotify are likely to be hurt by their associations with Facebook. Investors think they're getting either a social media company or a company with a high degree of correlation to social media companies. But in reality investors get a company that pays for its content, something neither Facebook nor LinkedIn do for the content viewed and shared on their platforms, and has only loose social media ties. Vevo might boast of its integration with Facebook's Open Graph. It could point to some impressive growth numbers after its Facebook-heavy redesign launched in early March. But integration with a social media service doesn't mean your fate is tied to that of a social media company.
Vevo's best playing card is its exclusive access to the video content of three of the four major labels (two out of three if regulators approve Universal's acquisition of EMI). That's the story Vevo should sell to investors. But if it shoots for an IPO any time soon, the social media angle would overshadow everything else. Whether or not it's germane to the IPO, investors will be thinking social media.
That's not to say Vevo should aspire to an IPO right now. The company needs the time and freedom to work on its long-term strategy. Two of its three investors (Universal Music Group and Sony Music Entertainment, who funded the company along with Abu Dhabi Media Group) should see Vevo as a strategic investment that will help push their businesses into the digital future. Unless one or more of its three investors desperately wants out, Vevo should stay private and build a better story before considering handing over its equity to public investors.
A Spotify IPO is a bit different. Through a common shareholder (Sean Parker) and early Open Graph initiatives, Spotify has a close connection to Facebook. Spotify is rightly seen to depend more on Facebook than many other music services and an IPO could suffer as a result. Like Vevo, Spotify also needs to build a better story before considering a public offering. And it needs to build a stronger identity that relies less on its relationship with Facebook and more on its existing revenue and growth opportunities. ( New York Post)
Live Nation Price Target Drops
Miller Tabac has reduced its long-term price target on Live Nation to $17 from $18. The firm's short-term price target is $12. Shares of Live Nation were up 2.2% Tuesday to $9.60. ( Benziga)
Pandora Shares Drop; More Facebook Effects?
Shares of Pandora Media were down 10.2% to $10.59 Tuesday, erasing the gains made last week after the company posted better-than-expected revenue in its fiscal first quarter and upped guidance for fiscal 2012 revenue.
What was behind the decline? One possibility is investors have linked Pandora to the fate of Facebook. Since Facebook's downward spiral continued Tuesday - down 9.6% to $28.84 -- Pandora took a hit as well. Another possible factor is a reaction to news that Samsung is releasing a service called Music Hub that will be initially available on the Galaxy S III in Germany, Italy, the U.K., France and Spain.
Neither explanation makes much sense, however. Pandora relies less on Facebook than most other digital music services. Its prominence in the marketplace preceded the Open Graph initiative and will grow in spite of Facebook's worrisome business model or IPO-related problems. Samsung's Music Hub is currently a non-factor. The service is more akin to Google Music's storage service and on-demand services such as Spotify, not Internet radio services. In addition, no Music Hub launch has been announced for the U.S. -- the only country in which Pandora operates.