The biggest technology IPO of 2018 is over-hype

I admit it … I’m one of those people who sings a little loud (և a little off) when I put on my headphones.

I can not control myself, the music touches me … to the annoyance of anyone in the field of hearing.

In fact, most of my iPhone memory is dedicated to my playlists. Until I recently updated my storage, I actually had to delete the photos to keep all that music ready to be played with my finger.

I have a lot of space now … but there is a problem.

It is known that I pay more than $ 20 a month to buy songs from Apple. I know this is completely unnecessary for today’s streaming technology. But I was stuck in my paths.

I recently “joined” … ա I joined Spotify, a live Swedish listening service. And I will never go back.

So when Spotify, which is valued at about $ 20 billion, announced its unique share offer in March / April, I was thrilled. I started researching the headlines և already analysts call this the biggest technical initial public offering (IPO) of 2018. The expectations are huge.

But, alas, I am a cynic at heart. Despite my excitement, I had to ask myself … Is a Spotify stock ad really worth it? So today, let’s take a closer look at this IPO to find out.

There is talk of a musical revolution

Spotify is, in my opinion, one of the most powerful innovations in music, as Kurt Cobain has probably discovered ear-splitting reactions – raw, sad words about teen anxiety.

The concept is simple: you are broadcasting music on the Internet. Free. Or, at most, a small $ 9.99 monthly fee. You just need the Spotify app to access it.

When Spotify was launched in October 2008, it was a breakthrough, a revolutionary idea. That’s why the company helped to become a leader in the music streaming market by paving the way for services such as Apple Music (Apple streaming service launched much later in 2015).

Spotify is an endless, user-friendly cash register.

You listen to what you want, where you want, when you want. The app is compatible with almost every device I can think of, from PC to smartphone և tablet.

And if all that music sounds overwhelming, do not worry, you can also use the unique music discovery function to find songs that match your musical preferences.

The whole platform is a great idea.

Unfortunately, investors like us have not been able to participate in this revolutionary service because the company has been private for the last decade. So now that we can get a share of the stock soon, we need to make sure it’s worth the investment.

The Times, they are A-Changin ‘$ 1.8 trillion for the industry

The first thing to note is that, according to PwC, the global entertainment industry is expected to grow from $ 1.8 trillion in 2016 to $ 2.2 trillion by 2021. That’s good, but it represents a slower 4.2% annual growth rate, down from 4.4%. % forecast was made in 2016

This means that the old school entertainment industry is starting to grow. To address this, the industry needs to focus on building sustainable customer relationships.

After all, consumers are king. When it comes to recordings – movies, television, music – we dictate what we want to see, hear or feel. We vote at the expense of our time, our attention փոքր the small subscription fee (think Netflix, Amazon Video և Hulu).

Just as industries and goods, such as healthcare, cars, refrigerators, thermostats, etc., needed a revolution. See Exact Medicine, Internet of Things, and Fun.

And that revolution is here. Spotify is just one of the big players.

That’s why Spotify has about 140 million active listeners, 70 million of whom pay premiums for advanced features. Better yet, the service boasts 30 million songs, adding more than 20,000 songs a day.

It also contains over 2 billion playlists created by the company’s growing user base (a great idea that engages the customer much more directly), and 5 5 million playlists are created or edited daily.

This is obviously a huge availability. However, there is one problem …

The problem is money, money, money

Despite all this, Spotify has not found a way to be profitable.

Yes, in 2016 sales increased by 52% to $ 3.09 billion. However, the net loss doubled to $ 568 million. (Although the net adjusted loss is over $ 310 million).

For example, about $ 2.62 billion of that revenue was evaporated from the value of goods sold. Another $ 440 million was lost on sales, marketing costs, and more.

Minimum profit before interest, taxes, depreciation Amortization in 2016 amounted to a negative $ 169.2 million, compared to a loss of $ 180 million the previous year. Billboard counted.

But we have to see that the company generates positive income.

Not Spotify. So the numbers made me raise my eyebrows. With that in mind, I turned to Paul Mampili for his thoughts on Spotify’s public listing.

Paul Mempilli speaks on Spotify Stock

Paul is our favorite guy for all the breakthrough technology, so I knew he had to come up with some interesting ideas. Here is what he said to me.

Spotify’s public list is interesting from two points of view. Instead of making the shares available to the general public, Spotify will list itself directly on the stock exchange. This means that only institutional investors have access. excluding the need for banks to set a preliminary price, contact sellers, buyers, etc.

Second, Spotify is still losing money, even though it has a huge subscriber base. However, it’s also a subscriber business, which means revenue duplication, it’s a great model. Plus, like Netflix, it’s a global business, so it can continue to grow.

So the biggest concern for Spotify is this. Are enough people going to buy an IPO that you want to be in from day one? Because many times you get the opportunity to buy it lower. This is because most people play IPOs for the first day or week for a quick pop and then release them.

I’m saying that people who want to buy stocks as an investment should wait their turn, wait for stocks to trade, and see how Spotify’s business operates in a few quarters. Then you can build your position over time if everything looks good.

Overall, Spotify is a great product with a great model. It can ultimately lead to profitability. But this is “wait and see”. Do not get depressed by the noise!