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The MBW Review offers our take on some of the music biz’s biggest recent goings-on. This time, we look into the news that Spotify is apparently being valued at $19bn in private trades between investors ahead of its IPO next year. The MBW Review is supported by FUGA.
Spotify’s valuation keeps on going up and up.
According to a report from Reuters, the Swedish streaming music company’s market worth currently stands at a whopping $19bn in private trades – ahead of its expected flotation on the New York Stock Exchange early next year.
That’s apparently equivalent to over $4,000 per share.
These figures are remarkable when you consider that Spotify, which posted a near-$400m operating loss last year, was being valued at just $1bn five years ago.
According to The New York Times, that billion-dollar valuation was achieved when Spotify secured a financing round of about $100m in February 2011, led by the venture capital firm Kleiner Perkins Caufield & Byers and Russian investment company DST Global.
By May 2012, this reported valuation had leapt up to $4bn, thanks to a new $220m funding round, led by Goldman Sachs with around $100m of investment.
And in October 2014, the New York Times once again took a stab at Spotify’s valuation – suggesting that the firm was now worth around $5bn to $6bn.
In May 2015, we first heard that Spotify’s valuation had hit $8bn – as the firm agreed a $350m funding raise which, according to CNBC, involved another hefty investment from Goldman Sachs.
Bearing in mind the question asked in our headline above, this is a highly significant figure.
In late 2016, Investopedia – via Equidate and Bloomberg Billionaires Index – reported that, if Spotify continued to carry an $8bn valuation, then CEO Daniel Ek would possess an $825m stake.
Then-Chairman and Spotify co-founder, Martin Lorenzton, noted the analysis, would owned a $1bn holding.
In percentage terms, then, Ek’s ownership of Spotify was placed at 10.3%, with Lorentzon on around 12.5%.
It’s worth noting that these figures were published in November 2016; Spotify has not taken on any more significant investment since then, according to Crunchbase.
Meanwhile, Lorentzon stood down as Chairman of Spotify in October 2016, but remains on the board.
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Fast-forward to today, and that new Reuters report valuing Spotify at $19bn – and both Ek and Lorentzon appear to be sitting pretty.
If they had maintained the percentage holdings reported by Investopedia in 2016, Daniel Ek’s 10.3% stake would currently be worth $1.96bn, with Lorentzon’s 12.5% holding translating to $2.38bn.
Also, think on this: it’s believed that, due to kickbacks in licensing deals, the major labels each own single-digit equity stakes in Spotify.
At the firm’s current valuation, every 1% equity holding in Spotify is – right now – worth approximately $190m.
A 5% stake would be enough, therefore, to carry a valuation of just under $1bn.
These figures may yet continue to climb.
Reuters reported as recently as late September that Spotify was worth $16bn in private trades. That number has grown by $3bn in the two-and-a-bit months since.
One thing that may complicate matters: as MBW reported last week, Spotify is believed to have received a lump sum as part of its new deal to ‘swap’ 10% equity ownership stakes with Tencent Music.
With Tencent Music worth $10bn and Spotify worth anywhere from $16bn – $20bn at the point of trading, that lump sum might have been worth anything from $600m to $1bn.
It’s intriguing, knowing what we know, to ponder where that money may have ended up – and which individual Spotify shareholders might have benefitted.