Spotify IPO in 2017: Should You Invest?
Why Spotify IPO Could Be the Next Netflix
A lot of investors kicked themselves when Carl Icahn sold his shares in Netflix, Inc. (NASDAQ:NFLX). He made $2.0 billion from a single trade. Why hadn’t they bet on NFLX stock too? It was a colossal mistake, but now they have a shot at redemption via the Spotify IPO in 2017. If you haven’t heard of Spotify stock, I suggest you take a closer look.
There is unbelievable potential here.
For those who’ve missed all the Spotify IPO news, it is essentially Netflix, but for music. Users pay a flat fee per month. In exchange, they get to stream any music they want.
And I mean any music.
It’s incredibly hard to find a song that Spotify doesn’t have. The company refreshes its catalog all the time.
I’ve been using it for more than a year and it’s honestly changed how I listen to music. I don’t shop for albums, browse through YouTube, or visit shady web sites.
But don’t take my word for it; look at the data.
Spotify has over 50-million paying subscribers. Each of them pays $9.99 per month, suggesting that the company earns approximately $6.0 billion per year.
That’s unbelievable for a startup!
Better still, those who avoid the premium subscription are forced to hear advertisements, which means they’re still contributing to the firm’s success. Spotify is making money either way!
Revenue by any other name should smell as sweet, I guess.
In this way, Spotify is actually superior to Netflix. If someone doesn’t want to pay Netflix a monthly fee, they simply don’t use the service. That’s wasted money according to Spotify.
They’d rather those people still contribute to revenue in other ways. Just pop in a few advertisements and milk them that way. It’s a brilliant business move. And once you add in those basic subscriber accounts, Spotify’s total number of users jumps to over 50 million.
It doesn’t take a genius to see that Spotify stock is the next big thing.
Investors that missed out on Netflix’s boom period should be paying close attention. You don’t want to make the same mistake twice, because the last time, folks made up to 12,883% in returns!
Remember the old saying: “Fool me once, shame on you. Fool me twice…”
Is There a Spotify IPO in 2017?
This may seem like an odd question after what you read above. But bear with me, because the Spotify IPO isn’t normal. In fact, it could revolutionize the IPO process forever. Let me explain.
This is how most companies go public:
- Company X makes a whole bunch of new shares.
- It sells those shares in private, to Wall Street.
- It gets listed on a stock exchange.
- Wall Street sells its shares to the public.
- Company X is now a public company.
Haven’t you wondered why share prices go crazy after an IPO?
It’s because Wall Street buys the stock for cheap. They have first dibs. Then they flip those shares to investors, making a tidy profit. It’s completely unfair to the average investor. But that’s how IPOs have worked since the dawn of time.
Wall Street must get its pound of flesh because it is the middle man, the gatekeeper. It has a divine right to tax the share price by simply being there, even if it means that the rest of us pay more than we should.
They call it “financial intermediation.” I call it highway robbery.
Maybe this process made sense 50 years ago, when someone needed to coordinate the sale of new shares. But then computers and the Internet happened. Firms began selling directly to consumers and middle men got washed away in the flood.
Wall Street shouldn’t be surprised that the water is now lapping at their feet.
But how does a Spotify IPO in 2017 figure into this?
Simple: Spotify is trying to bypass Wall Street. The Swedish-based company wants to sell directly to regular investors. Here’s what that would look like:
- Spotify makes a whole bunch of new shares.
- It gets listed on a stock exchange.
- Spotify is now a public company.
Doesn’t this process seem much simpler?
By listing its shares directly on an exchange, Spotify is appealing directly to retail investors.
We’ll get a chance to buy Spotify stock at its real IPO price–not the marked-up price that Wall Street loves to push our way.
We get to pocket those extra gains, not them.
But here’s where we get to the timing problem. If Spotify is going to list directly on an exchange, it needs to generate enthusiasm from retail investors. That may take a while.
Some people think that Spotify will hold off until 2018, but I think it’ll happen sooner.
The company has officially declared that it won’t seek another private funding round, so we know it needs the cash. And based on certain movements (like hiring a head of investor relations), we can tell that a Spotify IPO looks imminent.
Keep your eyes peeled for more signs of Spotify IPO news though, because it could be one of the best tech investing opportunities of 2017.
A Brief History of Spotify IPO Valuation
Some reports suggest that a Spotify IPO would bring the company’s valuation to $13.0 billion.
Without any context, this might seem a little ridiculous.
But remember that Spotify has the same upside potential as NFLX stock, if not more.
People love music. They love streaming music. And they love paying a flat fee to stream as much as possible. That gives Spotify a solid bedrock of revenue.
Of course, I’m not the first person to notice the potential of Spotify stock. Just take a look at its funding history.
|
SPOTIFY FUNDING HISTORY |
||
|
Date |
Amount |
Type of Funding |
|
March 2016 |
$1.0B |
Debt |
|
Jan 2016 |
$500.0M |
Debt |
|
June 2015 |
$526.0M |
Equity |
|
November 2013 |
$250.0M |
Equity |
|
November 2012 |
$100.0M |
Equity |
|
June 2011 |
$100.0M |
Equity |
|
February 2010 |
€11.6M |
Equity |
|
August 2009 |
$50.0M |
Equity |
|
October 2008 |
$21.64M |
Equity |
There’s been a huge amount of interest in this company going back years. It’s easy to understand why. The music industry has been drifting in no-man’s land for a while now.
The Internet made it possible for people to download illegal music with ease. MP3s and later smartphones helped them store large amounts of music on a portable device.
Put another way, the concept of an album became as outdated as a typewriter.
But the music industry didn’t adapt. In fact, it fought tooth and nail against progress.
Remember Napster? What about “Kazaa,” “Morpheus,” and “LimeWire?” All of this software made it easier for people to share music, but that threatened the established order of the music industry.
They tried desperately to prevent the internet from impacting their business. Did they succeed?
Shockingly, no. Here we are, two decades later, and the industry is working hand-in-glove with companies like Spotify. They may have won a few battles along the way, but they lost the war.
Everyone But Wall Street Loves the Spotify IPO
If the Spotify IPO succeeds, many of the company’s venture capital investors will be selling directly to retail investors. That’s a really good thing. Both sides come out as winners.
It’s a good deal for VCs, and it’s a good deal for retail investors. The only people that don’t like this deal are the Wall Street fat cats that sit in the middle of the old IPO process.
Let me give you an example.
Snap Inc (NYSE:SNAP) went public earlier this year. Wall Street firms negotiated an early-bird price with the original venture capital investors. They paid $17.00 per share.
When the stock started trading, they sold the shares at $24.00.
That means the original VCs lost out on $7.00 per share. Why? There was absolutely no value provided by the financial firms, yet they sliced out a huge chunk of profits.
It’s highway robbery. The VCs lost out on 41% returns for absolutely nothing. It must have been a few weeks between the closed-door IPO sale and the first day of trading. What a sham.
Imagine if retail investors got access at the same time as Wall Street. Some retail investors would have been able to buy shares closer to $17.00. Which is how it should be!
The share price would likely have jumped to $24.00 pretty quickly, but at least it would have been fair. No one would have priority. First come, first serve.
I’m really hoping the Spotify IPO overturns the old IPO model, It’ll be a great day for investors and venture capitalists. And I’ll shed no tears for the Wall Street fat cats that used to rob us blind.
Should You Invest in Spotify IPO?
I can’t promise you every investment will work out. I can’t promise you every stock will be a winner. I can’t even promise that tight feeling in your stomach will go away.
But I can promise you one thing: You miss 100% of the shots you never take.
That’s one of the few guarantees in life. You miss 100% of the shots you never take.
It’s a hard truth to accept, because we want to believe in silver bullets. Wouldn’t that be great? If one simple trick could solve everything in life. But that’s not how success happens.
Success takes patience. It takes guts and willpower. Anyone can see that Spotify’s music streaming business model is the future of the music industry. But who is willing to stake their money on that claim? That’s what separates the winners and losers.
It’s pretty obvious that I am bullish on Spotify stock. I think the way they’re planning the Spotify IPO in 2017 is brilliant. More to the point, Spotify is basically Netflix, but for music, and NFLX stock is one of the greatest trades of all time.
Betting on Spotify stock is a no-brainer to me, but I’m not the one investing. You are. You have to put your money on the line.
So ask yourself: Which side of history do you want to be on?
