Spotify Scrapped

06022020---SPOTIFY

Image source: Hishimasa - Finimize

What's going on?

Spotify wrapped up last year with disappointing fourth-quarter earnings on Wednesday, and investors couldn’t believe the streaming giant had ever been their jam.

What does this mean?

Spotify added 11 million paying customers in the last three months of 2019, beating investors’ expectations and bringing the total number of subscribers to 124 million – more than double its closest rival. But the streaming giant’s been spending big on podcast startups – including Gimlet Media, Anchor, and Parcast – in an effort to set itself apart, and that splurge might be one reason its losses grew by 70% in 2019. Get used to it, Spotify warned investors: the company will be doubling down on podcast spending in 2020.

Why should I care?

For markets: At a loss for words.
Spotify’s stock price fell as much as 5% on Wednesday. But misery loves company: Snapchat-owner Snap Inc. reported lower-than-expected fourth-quarter sales despite adding more users than forecast, and its shares dropped over 10%. Perhaps investors should take this as a learning moment: both companies were loss-making when they first listed their shares on the stock exchange, but that didn’t put anyone off. In fact, the percentage of loss-making companies listing on US stock markets in 2018 was the highest since the dotcom bubble in 2000.

The bigger picture: No mo’ banks.
When Spotify went public in April 2018, it kicked off a new trend among tech companies of listing directly on a stock exchange. In a traditional initial public offering, the company raises money by selling new shares. But in a direct listing, the company simply lists existing shares without selling new ones. That means it avoids paying investment banks for organizing and marketing their public debut – though it also misses out on the windfall that comes from the sale of new shares. Workplace messaging service Slack listed directly not long after Spotify, and it’s rumored Airbnb, GitLab, and Asana might do the same this year.

Originally posted as part of the Finimize daily email.

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