Spotify says losses to shrink even as revenue growth slows

Music streaming giant Spotify has forecast that its operating losses will shrink this year, even as revenue growth slows. Does that make it worth over $27 billion?

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Source: Bloomberg

Spotify has predicted that it will make an operating loss of between €230 million and €330 million in 2018, narrowing from a loss of €378 million in 2017, even as revenue growth slows to between 20% and 30% from 39%. It set out a long-term target for revenue growth of between 25% and 35% in March.

The Swedish company, which has been prioritising growth over profits, and is set to pay up to €40 billion in costs for its unusual direct listing onto the New York Stock Exchange (NYSE) on 3 April, says revenue is expected to be between €4.9 billion and €5.3 billion in 2018.

It is aiming for between 92 million and 96 million paying subscribers by the end of the year, and expects to have signed up between 73 million and 76 million this month. It recently had to admit that about two million users of its free service had blocked advertising without paying for the ad-free premium service. It had 157 million active users as of the end of 2017, of which 71 million were paying for the ad-free versions of the service.

Spotify is set to be worth $27.7 billion at the end of its first day of trade as a listed company on 3 April, according to IG client accounts. The expected valuation on IG’s grey market rose in the wake of Spotify releasing its revenue and operating loss forecasts, and a valuation that high would make the company larger in market capitalisation terms than social media platforms Snap and Twitter.

What is a grey market?

With IG’s grey market, clients can speculate on Spotify’s expected valuation before its listing takes place. The price of our market will settle at the end of Spotify’s first day of trading.

By taking a position on a grey market, you’re taking a position on a company’s potential market cap (total shares in issue, excluding optional shares, times price) ahead of its listing. If you think the estimated value of the company is over or under priced, or if news stories surrounding the business creates additional volatility, a grey market enables you to take advantage before the shares are released publically on the stock exchange. If you think that Spotify will be worth more than the price shown, you can buy the market. If you think that the price is an overvaluation, you can sell it

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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