Startups

Spotify has filed to go public

Comment

Music streaming service Spotify is going public and it just unveiled its filing.

The documents state that it is targeting a $1 billion IPO, but this is just a placeholder. The company actually plans to go public without the standard fundraising event. In other words, Spotify isn’t selling its shares on the stock market. Instead, the event known as a “direct listing” will be a series of transactions from existing shareholders (like employees and investors) selling shares to stock market investors. Spotify’s filing even acknowledges that this unusual process is “risky.”

Its public debut is likely to happen in late March or early April, but it is unclear how much shares will cost when it lists under “SPOT” on the New York Stock Exchange. Spotify says that for 2018 its shares have traded on the private markets for between $90 and $132.50, valuing the company at $23.4 billion at the top of the range. But that these transactions “may have little or no relation to the opening public price of our ordinary shares on the NYSE.”

Spotify says it is present in 61 countries and its platform includes 159 million monthly active users and 71 million premium subscribers.

The filing shows that the Swedish company had 4.09 billion Euros in revenue last year (or close to $5 billion), compared to 2.95 billion Euros (about $3.6 billion) the year before. 2015 saw 1.94 billion Euros in revenue (about $2.37 billion).

Losses for last year were 1.2 billion Euros ($1.46 billion), which compares to 539 million Euros ($657 million) the year before.

Spotify previously raised about $2.7 billion in both debt and equity. Accel, Kleiner Perkins and Founders Fund are amongst the Valley VCs that invested. Goldman Sachs and Fidelity also own part of Spotify.

The filing shows that CEO and co-founder Daniel Ek has voting power that represents 23.8% of the company. However, some of this voting power is on behalf of shares owned by Tiger, TME Hong Kong and Image Frame. Ek technically owns closer to 9% of the business.

The prospectus has an additional note about Ek’s compensation, which says that he doesn’t receive a base salary, but is eligible for $1 million annual bonuses based on metrics like subscriber growth and active users.

Martin Lorentzon, who co-founded the business, owns 12.4%. Other large shareholders include Tencent, Tiger Global, Sony Music and Technology Crossover Ventures (TCV).

There are some key obstacles to the business, which Spotify acknowledges in its risk factors.

In it, Spotify explains how it will have to stay ahead of competitors and satisfy rights holders. The first risk mentioned is that  “some of our competitors, including Apple, Amazon, and Google, have developed, and are continuing to develop, devices for which their music streaming service is preloaded.” Since Spotify currently doesn’t make its own phones or smart speakers, its competitors have an advantage in growing subscriber counts. This could ultimately encourage Spotify to build its own smart speaker or headphone hardware in the future.

Some are concerned that Spotify is beholden to music rights owners like record labels who could try to raise rates during periodic re-negotiations if they think the service becomes too profitable. There are also administrative agencies like the Copyright Royalty Board and trade groups like the American Society of Composers, Authors and Publishers who could seek to increase the rates Spotify has to pay. Control of rights is heavily concentrated within a few major labels and organizations. Universal Music Group, Sony Music Entertainment, Warner Music Group, and Merlin hold rights for music that accounted for 87% of Spotify’s streams in 2017. They could potentially wreck Spotify’s margins by demanding higher rates or deprive it of content in ways that would drive away listeners.

Spotify’s costs could continue to increase as it pays for content, creates its own, builds new features, and markets the service in the face of competition. Spotify’s licensing and royalty agreements are complex and could lead to litigation costs if it doesn’t hit milestones or guaranteed minimum payouts, or doesn’t properly license all the content it streams. Spotify has already been hit with numerous lawsuits for failing to find and pay all rights holders. Its competitors also hold larger patent portfolios that they could use to attack Spotify for intellectual property infringement. 

Spotify faces competition from all sides and formats. There are traditional formats like CDs and Vinyl, digital files like MP3s and iTunes downloads, terrestrial and satellite radio, online radio like Pandora, and competing on-demand subscription services including Amazon Prime, Apple Music, Deezer, Google Play Music / YouTube, Joox, and SoundCloud. Since Google and Apple own the top mobile app stores, they could potentially bury Spotify and already charge it a tax that doesn’t get applied to their music services. Interestingly, Spotify lists Facebook as a potential competitor, given that it’s building a smart speaker and has struck deals with record labels, although it offers no music streaming service currently.

The company writes that  “a key differentiating factor between Spotify and other music content providers is our ability to predict music that our Users will enjoy.” Features like Discover Weekly are what keep hardcore listeners on its service, and it will have to find a way to stay ahead of the recommendation engines of its competitors if it wants to win. 

Check out all of TechCrunch’s stories about Spotify going public, and read our feature piece “Going public pits Spotify’s suggestions versus everyone.”

 

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

9 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

11 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android