Spotify Manages To Hit The Right Note With Investors

The world’s largest music streaming service has completed the first day of trading on the New York Stock Exchange.

Share prices opened at $165.90 – much higher than the expected $132 guide price set by the NYSE in the lead-up to the float.

After an initial surge, the price settled at $149, valuing the company at $26.5 billion – much more than the recent tech float of Dropbox, the cloud storage company and social media giant Twitter.

Dropbox started trading in New York only days before Spotify and was valued at $12 billion by the market.

Going public in 2013, Twitter is a comparative old-stager on Wall Street compared to the new internet upstarts, but is valued at considerably less, just $7 billion.

Worth billions, but no profits

The trio do have something in common. None have ever made a trading profit.

Spotify co-founder and CEO Daniel Ek said earlier this week that the float puts Spotify on “on a bigger stage” while insisting that the initial public offering would not “change who we are, what we are about, or how we operate”.

The streaming service reportedly has 159 million monthly users, with 71 million subscribers paying to listen to music.

Dropbox is a unicorn giant, with 500 million users – but only 2% pay for the service.

Both corporations face the same problem of converting their massive user bases into paying customers with the worry that they will jump ship for free rivals if they are asked to cough up some cash for their music or storage.

Flawed business model

The business models seem flawed. 

How can a company continue to burn through billions of pounds of investor cash without generating dividends to repay the faithful?

Rewarding them with shares is the last option that has made some investors wealthy, but now the door is closed on that option.

It’s reported AirBnB and Uber are anxiously watching these tech floats to see if they can benefit from following suit, and they may have more succeed as they have monetised their businesses already.

In the end, the markets will have their verdict, but investing in technology unicorns – new businesses worth more than $1 billion – seems a risky venture.