Music streaming service Spotify is going public and they’ve just unveiled their filing.
The documents state that it is targeting a $1 billion IPO, but the company actually plans to go public without the fundraising event. This number is generally considered a placeholder that is subject to change, but in Spotify’s case the company additionally isn’t selling shares, it is all transactions from existing shareholders.
The filing shows that Spotify 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.
There are some key risks to the business, which Spotify acknowledges in its risk factors.
Spotify says it is present in 61 countries and its platform includes 159 million monthly active users and 71 million premium subscribers.
Some are concerned that Spotify is beholden to music rights owners like record labels who could try to jack up their 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, researches and 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.
The company is going public under the ticker of “SPOT,” on the New York Stock Exchange.
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