Spotify launched it’s first public offering today, at an initial share price of $165.90.  According to MarketWatch, here’s 5 things you should know about Spotify:

1) Last year, Spotify generated ~ $5 Billion in revenues.  This is up about 40% from the previous year.  However, the losses increased by over 100% from $600 Million in the previous year to over $1.5 Billion last year.  Remember kids, “revenue” is not profit.  What this means is that the company lost over a billion dollars last year.  More interesting is this quote from the company: “We have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to be profitable, or to generate positive cash flow on a sustained basis,” the company said in its filing. “In addition, our revenue growth rate may decline.” Huh?  This is likely the way for the initial investor clan to cash out at much higher values than they put in, leaving everyone else holding the bag of poo.  Unfortunately, it looks like long term holders may never recoup their investment.  Very typical of IPO’s these days–buyer beware.

2) The company has chosen to do a “direct listing” rather than the traditional initial public offering.  The difference is that Spotify is not offering new shares to raise money; instead a direct listing allows existing shareholders to sell their own existing shares to the public.  While this can significantly reduce the cost of an IPO, it is more likely a way to support the guise of point #1.

3) In comparison to the competition (i.e. Apple), all Spotify does is stream music.  While this has some inherent benefits to its customers and business operations, Spotify does not have a gigantic hardware business to lean on when things get tight.  Pandora is in a very similar position, and is still struggling to be profitable.  In fact, it may be eventually realized that this particular business model is just not profitable at all, ever.

4) The one thing that is in Spotify’s favor is its loyal user base.  Spotify had over 70 million users in 2017, up from 48 million in 2016.  The downside to customers is that these “loyal” fan-bases are often the first to feel the pain due to the constant price increases in the subscription service model.  Remember when those little Comcast boxes for additional TV’s only cost $1.99?  Now they are around $5.99 each.  Although a great way to increase revenues, over time customers will start to flee if the product is not also increasing its perceived value.

5) Family plans are displacing “Premium” user plans which ends up creating less revenue overall due to the economy of a shared user platform.  Spotify’s average per “Premium” user revenue has decreased by almost 25% from the past year.  While the family plans help reduce the overall churn rate of their customers (read: increase loyalty), it seems that the revenue curve is likely headed downward at some point, due to this migration.

Would you pay $165 a share?  As artists, I can assure you we are truly only receiving pennies on the dollar!