Spotify is a profitable company – and the markets are delighted.
The streaming service’s share price shot up around 14% on the NYSE Tuesday (July 23) in response to the news that it had achieved its second consecutive quarter of profit this year, beating its own Q2 guidance for Premium subscribers, gross margin, and operating income.
Spotify’s share price continued to rise on Wednesday before dipping a little on Thursday. At time of publication, SPOT’s market cap on the NYSE stands at USD $65.2 billion, around $23 billion bigger than Universal Music Group‘s equivalent market cap on the Euronext (~USD $42 billion at current exchange rates).
According to new filings with the US Securities and Exchange Commission, prominent Spotify exec shareholders have wasted little time cashing out stock following this share price bounce.
MBW has spotted a filing with the SEC, dated Thursday (July 25) that reveals Spotify co-founder Martin Lorentzon is selling 255,000 ordinary shares, with an aggregate market value of USD $85.8 million. Goldman Sachs acted as broker for Lorentzon’s share sale.
The sale is being conducted via Rosello Company Ltd., a Cyprus-registered holding company owned by Almatea, a Luxembourg-based firm whose sole shareholder is Lorentzon. The vast majority of Lorentzon’s shares in Spotify are held via Rosello.
This is the second time in the past couple of months that Lorentzon has cashed out some of his Spotify stock.
In June, Lorentzon sold a separate clutch of 255,000 shares for $81 million in value.
Over the past two months, therefore, Lorentzon has cashed out $166.8 million in Spotify stock across two transactions.
According to Spotify’s latest annual report, Lorentzon was the third-largest shareholder in Spotify at the end of 2023, with 10.9% of outstanding shares, behind SPOT co-founder/CEO Daniel Ek (15.6%) and Edinburgh-based investment firm Baillie Gifford (12.0%).
Lorentzon’s sale this week represents only a small percentage of his total share ownership. The 21,476,145 SPOT shares he owned at the end of 2023 would be worth around $7 billion based on the company’s share price at market close on Thursday (July 25).
Lorentzon stepped down as Spotify’s board chairman in 2016 after eight years in the role.
Lorentzon wasn’t the only Spotify exec to cash out a stack of stock this week.
According to an SEC filing from Wednesday (July 24), Alex Norström, Spotify’s Co-President and Chief Business Officer, is selling 78,218 Common shares with an aggregate market value of USD $26.4 million.
Morgan Stanley acted as broker for the share sale.
Meanwhile, Gustav Söderström, Spotify’s Co-President, Chief Product & Technology Officer is selling 52,788 common shares with an aggregate market value of $17.4 million, according to an SEC filing from Wednesday, spotted by MBW.
Morgan Stanley also acted as broker for Söderström’s share sale.
Katarina Berg, SPOT’s Chief Human Resources Officer, is selling 23,337 units of Common stock with an aggregate market value of $7.8 million, according to an SEC filing from Wednesday spotted by MBW.
Morgan Stanley acted as broker for Berg’s share sale.
According to Spotify, Berg “oversees all aspects of human resource management and is responsible for developing and executing the people strategy in support of our overall business plan”.
Berg’s share sale arrives seven months after Spotify slashed around 17% of its global workforce, or 1,500 jobs, in a round of layoffs in December bringing the total number of employees cut from its worldwide payroll to 2,300 in the calendar year of 2023.
Elsewhere, Ben Kung, Spotify’s VP of Financial Planning and Analysis and interim CFO, has this week sold 3,667 units of Common stock with an aggregate market value of $1.25 million, according to another SEC filing from Wednesday.
Morgan Stanley acted as broker for the share sale.
The Spotify executive windfalls outlined above, combined with the company’s record-high quarterly profit for Q2, paint a picture of a booming moment in time for music streaming at the world’s largest music subscription platform.
Yet there’s another set of music industry stakeholders who might not be in as celebratory a mood this week.
In an SEC filing published on Wednesday, Spotify estimated that it would have to pay out approximately $50 million if the Mechanical Licensing Collective (MLC) wins its bundling lawsuit.
The MLC’s lawsuit was filed in May in the US against Spotify for allegedly underpaying mechanical royalties to songwriters and publishers as a result of its decision to reclassify its Premium tiers as ‘bundles’ because those plans now offer access to audiobooks.
According to Spotify’s SEC filing: “If the MLC were entirely successful in this case, the additional royalties that would be due in relation to the period March 1, 2024 to June 30, 2024 would be approximately €46 million, of which approximately €35 million relates to the three months ended June 30, 2024, plus potentially penalties and interest, which we cannot reasonably estimate.”
Spotify added: “We intend to vigorously defend this lawsuit.”
The €35 million [in royalties alone] Spotify cites for the three months ended June 30, 2024 (i.e the second quarter of 2024) converts to $37.68 million.
This, in turn, gives us an idea of the annual cost Spotify’s ‘bundle’ move will inflict on publishers and songwriters in the US vs. what they would have earned from the service under their previous royalty setup.
If Spotify were to pay around $37.68 million (€35m) less in mechanical royalties per quarter following its bundle change in March, SPOT’s mechanical royalty payments would be cut by approximately $150 million over the span of a year following the change.
Spotify co-founder and CEO Daniel Ek has not, so far, cashed out any company stock in the wake of the firm’s Q2 results.
Ek has, however, cashed out a bunch of shares in recent months. In April, he sold 400,000 share units in Spotify, with an aggregate market value of USD $118.8 million.
The move was the fourth time in the prior 12 months that Ek had cashed in some of his Spotify stock:
- In July 2023, Ek sold 675,000 shares for $100 million in proceeds;
- In October 2023, he sold 400,000 shares for $64.2 million in proceeds;
- And in February this year, Ek sold 250,000 shares for $57.5 million in proceeds
Across these four transactions (April’s included), Ek has cashed out approximately $340.5 million in Spotify shares since last summer.
Under a 2022 legal settlement called Phonorecords IV, music publishers and music streaming services agreed that ‘bundle’ services in the States are permitted to pay a lower mechanical royalty rate to publishers and songwriters than standalone music subscription services.
The MLC is the non-profit organization designated by the US Copyright Office to ensure that Spotify and other streaming services pay the mechanical royalties they owe to songwriters and music publishers.Music Business Worldwide