Are losses putting off Spotify launch into the public market?

By : Elliot Bishop

Most of those who listen to music know Spotify. Spotify is like the Canadian version of Apple’s iTunes that allows you to stream your music. And not just any music. High-quality music. That’s what makes Spotify so popular among its users. Unfortunately though, making it as a brand and as a company are two very different things.

Spotify has a large number of users, sure. According to the latest reports, it has over 50 million users. For every person who signs up to use the company’s streaming service, Spotify gets a commission. Most of the real money goes to the artistes themselves and the labels that represent them. In this scenario, the big earners are the people who hold the producing and marketing rights. Spotify gets the remainder after the deductibles, so it is a wonder that the company makes money at all.

Reports came out this weekend that Spotify is, in fact, making significant losses. In the last two years, Spotify has brought in $2 billion in revenue. A good number, right? Right, as long as you leave out the company has about half of that amount in liabilities.

And the losses. Over $300 billion worth of losses. Since inception, Spotify has never seen any profits. That is normal for any tech startup, but it is the losses that are a cause for concern for investors. Would investing in Spotify be stocking money in a sinking ship?

Also, investing in a unicorn startup seemed like a good idea about three months ago. That is when Snap Inc. had its IPO. Snap also had losses at the time of its IPO. On the bright side, Snap had a strong growth potential, and that is what it sold investors. But Snap is now seeing a turn in stock performance for the worse. Maybe you would have bought Spotify stock before, but with the Snap Inc. precedent things are not looking up for the music streaming firm.

Losses and a shaky track record are not the only things that stand in the way of Spotify trading on the public market. Spotify itself announced back in April that it might not be going for an IPO after all. According to the firm, listing directly on the New York Stock Exchange is simpler, not to mention cheaper. Spotify would not have to pay underwriters to sell its shares in blocks. All its shareholders would have to do is contact investors and sell their shares directly. While the move is good for the company, it just makes analysts skeptical.

In light of the company’s losses, a direct listing is a bit unreasonable for the Spotify. According to insiders, a Spotify IPO could be worth billions. Those proceeds could be used to pay off the company’s debt and fund its expansion.

At the same time, a direct listing could be beneficial for Spotify. The firm could save money for one. Secondly, Spotify shares could hit the market at their full value with no dilution. So far the only advantage the company has in the listing is that is recently closed a deal with the largest record label in the world- that should keep the revenue flowing.