Spotify, the music industry’s quiet giant, became a public company at last on April 3, navigating the media fanfare in typical fashion: with a low key, understated and unequivocally-successful direct listing on the New York Stock Exchange. After its first seven days of trading, share prices seemed to average out around $150 apiece, below its $165.90 debut but well above the $132 at which it was measured in private trading before its listing, valuing the company in the $27 billion range — among the 10 biggest tech public listings in history.
“It grabbed a lot more media attention than anything else in the music business has for a long, long time,” says MIDiA Research managing director Mark Mulligan. “And that matters, because right now the music industry is depending on Spotify to act as a litmus test of just how much interest the rest of the world has in the industry now that it is firmly locked in strong recovery mode.”
Yet some are concerned that Spotify’s valuation — almost double the $15.7 billion in revenue the IFPI reported the global music business earned in 2016, the most recent year for which metrics are available — is out of step with the realities of a company that doesn’t own its most lucrative assets, has deep-pocketed competitors and lost $1.5 billion in 2017, according to its F-1 filing.
“It’s hard to imagine Spotify is worth more than the entire recorded music business,” says David Lowery, Cracker frontman and a longtime critic of the service, who referred to its valuation as “mis-priced.” “Spotify is more like interactive radio than Netflix. Look at the stock price of Pandora ($5.03/share) or iHeart ($0.38/share) for a better comparison.”
Still, it’s early for Spotify, and there’s much it needs to prove over the next year, particularly as growth in subscriptions slows in markets like North America and Australia and is starting to pick up in areas like Germany and Brazil. “If Spotify and others can manage that transition through markets, then growth will sustain,” Mulligan says. “I don’t think much should be read into these early weeks. The time to start paying attention is after the first earnings — then we’ll see whether Wall Street buys Spotify’s narrative.”