Trade Review: Week Eleven (1/1)

Report: Spotify to raise over $100M for 3B valuation

After three consecutive years of net loss, Spotify, again, seeks outside investors to push Spotify over the edge into net profits for 2012. With the 100 million dollars potentially raised from Goldman Sachs and other private investors, Spotify will attempt to achieve a 3 billion dollar valuation. With this money Spotify hopes it can support its current cost structure while also expanding their library of music, marketing strategies for Spotify, develop new partnerships, create new innovations for their users and move Spotify into other countries in the coming years. With Spotify’s massive growth spurt from 2011 to 2012 after entering the American market, Spotify wants to create the same type of consumer movement in international markets with the 100 million dollars they plan to raise. After reporting over 200 million dollars in revenue in 2011, Spotify shows promising results for 2012 with projected revenue of 500 million. However, Spotify’s revenue is heavily dependent on amount of content it provides and “despite its impressive growth, Spotify has some issues, including its dependence on record labels providing content” (Loeb). The only way Spotify can sustain or increase foot traffic, which directly leads to subscriptions, is through amount of songs it can provide for its listeners. With only 18 million songs in the Spotify’s library, other companies like Apple dwarf Spotify’s total library by more than 10 million. With no other way of deriving revenue except through subscriptions and advertisements, Spotify needs to find a third stream of revenue to create more cash flow. Or, Spotify could increase their advertisement cost on their interface to bump of revenue. Already competing in price wars with other streaming services, Spotify cannot afford to increase their subscription prices. With music streaming increasing in competition amongst companies, Spotify needs the 100 million dollar funds to stay on top of the music streaming market share. Services like Pandora, Nokia, Rhapsody and Rdio are forcing Spotify to financially arm themselves to battle and protect their market share of the music streaming industry. Yet, the biggest competition has yet to come, where Apple is set to launch a music streaming program in the coming year that could potentially crush all competition. Due to their gigantic library of music, brand recognition and innovative trends, Apple will surely be a force to be reckoned with in the coming years and hopefully Spotify will continue to raise more money to go head to head with Apple.