According to Bloomberg, Stockholm-based music-streaming company Spotify Ltd is seeking a line of credit from banking institutions, which signals a major step toward an initial public offering. According to Investopedia, an initial public offering is the first sale of stock by a private company to the investing public.
Spotify currently has about 6 million subscribers paying subscription fees of ten dollars a month. This accounts for Spotify’s main source of revenue, while additional revenue is made through ad sales. Goldman Sachs Group Inc. which is currently invested in Spotify, is also the lead consultant guiding the company through the IPO process, which typically takes six to nine months.
When analyzing an IPO, other competition within the industry is often used to provide ideas as to potential valuation. Pandora Media Inc., offers a music streaming service similar to Spotify’s and has watched its stock price jump nearly 146 percent since its shares started trading in June of 2011. This is positive news for Spotify since Pandora’s success demonstrates the potential for growth within the industry.
Personally, I exclusively used Pandora until my roommate introduced me to Spotify about two months ago. Since then, I use Spotify at least once a day and can say that I enjoy Spotify’s vast music library over Pandora’s music radio, which does not allow the user to directly select what they want to listen to. What I find particularly innovative is the social aspect of Spotify, which allows the user to follow friends and access their customized playlists. The social aspect helps the user explore their friends musical tastes in and discover new artists and songs. In my opinion, even though Spotify is the more expensive choice at $120 per year versus Pandora’s $36, Spotify’s value surpasses Pandora’s by a long shot.
Spotify will generate lots of hype as we get closer to the offering date and will move into investors’ cross hairs especially after reaping huge profits from Pandora. In conclusion, Spotify will be an exciting company to watch go public and will most likely generate waves in the financial news in coming months.
Editor’s Note: Information from Bloomberg News and Investopedia was used in this article.