When Spotify (NYSE: SPOT) IPO’d on Apr. 3, the music streaming services company opened at a $30-billion valuation. Two outcomes are possible: either the stock will drift lower, as most tech stocks after IPO will or it will go up if it proves its business is superior over its competitors.
After going public, a stock may not necessarily fall but the chances are high. Insiders are locked up from selling shares for a certain time period. When they do, it puts pressure on the stock. In Spotify’s case, the company skipped the use of an underwriter, in a process called direct listing. This just meant the company did not have a share opening price.
Looking ahead, Spotify’s value will depend not on revenue or profit growth but on user growth. In its Securities and Exchange Commission filing, the company reported that it had 159 million MAUs (monthly active users), with 71 million of them paying a premium subscription. It made $5 billion in revenue in 2017.
Competition
Spotify faces plenty of competition. Amazon (NASDAQ: AMZN) Prime, Apple (NASDAQ: AAPL) Music, Pandora (NYSE: P), and SiriusXM Satellite (NASDAQ: SIRI). It also has the problem of running losses year after year. The company also faces a $1.6-billion copyright lawsuit. If it loses, it could open the door to more lawsuits. Last May, Spotify paid over $43 million to settle a proposed class action lawsuit.
