Published: Wed, April 04, 2018
Money | By Michele Stevens

Spotify finally goes public with a valuation of almost $24 billion

Spotify finally goes public with a valuation of almost $24 billion

On Monday, the New York Stock Exchange set the company's stock reference price at $132.

Some market-watchers cautioned investors not to read too much into the first day of trading, given the mixed performance of recent tech IPOs and an increasingly competitive music streaming landscape.

After the listing, Spotify has an enterprise value - which takes into account cash and debt on the company's balance sheet - of about five times its 2017 revenue of $5 billion.

"The attraction of the music-streaming service probably lies in Spotify's strong market share and rapidly growing revenues", Khalaf said.

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"Normally, companies ring bells". Spotify wanted to democratize the process and they didn't need to raise fresh money through the offering as is often the case with an IPO. This also means that the company won't have a share opening price.

On the eve of the public offering, Spotify CEO Daniel Ek touted the decision to avoid the usual fundraising and fanfare of an IPO as an example of the company thinking different.

Some were hesitant to even call Spotify's stock an IPO, CNN reported. "While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company".

The company's key competitor, Pandora, is worth about $1.2 billion, based on trading Tuesday.

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Shortly before Spotify began trading on Tuesday, Amazon teased that it now has tens of millions of active subscribers for its music service, though it did not reveal an actual number.

Users of streaming music services don't like to rebuild playlists or profiles, making it likely they will stick with Spotify if given good value, according to the analyst.

MKM PARTNERS, which wasn't part of FACTSET's data, set a $200 price target and a buy rating on the stock. "As investors look for valuation parameters, we expect focus will turn to the success of a similarly positioned company, Netflix, as an indicator of potential sentiment". So far, none of have lived up to that title - though the competition remains fierce.

Concluded Morris: "We anticipate investor questions will center around the sustainability of Spotify's competitive advantage and technological differentiators versus rivals as well as risks to content costs in future rights negotiations with artists and labels which could adversely impact the company's ability to expand their gross margin".

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