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Spotify reportedly delaying IPO to 2018

By | Published on Monday 6 February 2017


Spotify will not float on the stock market this year, as had been expected, reckons TechCrunch. That whole IPO thing’s now being pushed back to next year, says the tech site.

The apparent reasoning for the decision is that in twelve months time the streaming service will be better able to demonstrate that it is on the path to profitability. According to TechCrunch, this includes renegotiating terms with the record labels, talks for which are ongoing and progressing rather slowly, and also introducing a new variable pricing model based on limiting the number of times a track can be played. It’s hoped that an additional lower subscription rate would open up Spotify premium to a bigger potential consumer base.

The IPO had been expected this year because of the terms on some debt financing the streaming service took out last year. It raised $1 billion in the form of a loan, rather than new equity investment. Those who put up that money were already in line for a 20% discount if they converted that credit to stock upon IPO, and the discount is set to rise 2.5% every six months without an IPO after the first year.

It was indicated at that time that Spotify might be willing to let the discount run up to 25% – meaning a early 2018 IPO was always a possibility. However, TechCrunch’s sources reckon that Spotify will now seek to renegotiate the terms of that financing – though possibly just the hefty interest on the loan, which also rises the longer the IPO is put off.

On the decision to delay, one source said: “Three to five years ago, you could have an IPO based solely on user growth and promises of the future. But the financial climate has changed now. Today you have to show some path to profitability, especially at the valuation that Spotify has been targeting. That may have caught up with the company a bit”.

Spotify’s last valuation in 2015 came in at over $8.5 billion. TechCrunch sources say that some at the streaming service are now hoping for something between $11 billion and £13 billion. However, estimates suggest that once the IPO becomes a reality that will drop to a lower, though still pretty ridiculous, level.