Spotify hits the spot in its business valuation: $5.3 billion.

bullhornThere’s no question that Spotify has been an up-and-comer in the music streaming business.  Speaking anecdotally, over time more and more of my friends and family members have been signing up for the service.

And now, Spotify is pushing forward with an even more aggressive growth strategy … and it’s not aiming low at all.

In fact, the company is seeking backers at an eye-popping valuation level of $5.3 billion.

And to top it off, the company’s co-founders (Daniel Ek and Martin Lorentzon) intend to raise the funds not through equity investment, but through loans.

It seems neither person wishes to give up any more of the company to investors than has already happened.

What makes the $5.3 billion valuation so startling is not just the amount – big though it is.  It’s because that the last business valuation of Spotify, done less than 12 months ago, pegged the company’s value at just $3 billion.

That time around, a number of institutional investors stepped up to the plate (including Coca Cola, Fidelity and Goldman Sachs).  But don’t look for more institutional investment in this round of funding.

In the case of Spotify, being second or third in the music streaming market segment has turned out to be a good thing.  Pandora and others were the pioneers, laboring in the vineyards for many long years before proving out the business model. 

Then along comes Spotify and cleans up in a market space that people now understand fully.

At the moment, Spotify has around 6 million paying users in 28 countries — along with several times that number of people who use Spotify’s free, ad-funded services.  Spotify streams music across desktops and mobile devices along with other music gear.

The company reports that it pays approximately 70% of total revenues back to music rights-holders.  It’s not profitable yet … but how many years was Pandora bleeding red ink?  The better part of a decade, certainly.

There continues to be some low-level grumbling about how Spotify handles payouts to the “bigger name” performers in the music industry. 

According to some reports, Spotify pays only about $0.005 per stream.  That means only big stars (the likes of Beyoncé and others) can make any meaningful money from the service.

But for anyone who thinks that $5 billion+ is a tad rich when it comes to the valuation of a business property like Spotify … remember that Skype was sold to Microsoft for $8.5 billion in 2011, after having been valued at just $2.75 billion two short years before. 

So maybe the whole thing isn’t so far-fetched after all.

One thought on “Spotify hits the spot in its business valuation: $5.3 billion.

  1. Personally, I prefer Pandora over Spotify because I have created my own “stations” based on the genre of music I want to listen to. Spotify is good for listening to full length albums — not creating a “station”.

    Pandora fundamentally changed the way I listen to, collect, purchase and play music. And, trust me, I have spent decades listening to and collecting music. I dig Spotify and love their user interface – but, at this point in time, Pandora rules.

    Check out my profile on Pandora – search for “millhead”.

    Jeff Miller

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