Spotify

Water Cooler Investing
#1

I don’t recall seeing a thread about this. Thoughts?

#2

i have premium. not sure i’m committed to it though. certainly not if sub prices went up by much.

#3

Unlike most tech companies, their largest cost (royalties) scales at the same rate as growth. Not too attractive to me

#4

Exactly, that’s what I’m interested in seeing how they balance growth without affecting their margins. But as a user for more than 7 years (paying customer for 1-2 years), I think it’s a great platform/service

#5

added info. right now for 2017 they have a $300m loss. 71m premium subscribers and 150m free subscribers. each premium subscriber is about 10 bucks.

spotify for 2017 generated a 300m op loss. at a 22b valuation, and their growth rate, imo they should generate a billion in profits.

so how do we get there?

they have 150m subscribers, 71m of which are premium. if we assume that usage for premium remain the same and people do not convert over and focus solely on upping premium pricing. they need to geenrate 1.3b in additional revenue to have fair valuation. so they need to raise prices per user by $18/year or increase the price by $1.5/month. they will not raise prices, their competitors are amazon and apple.

now what if people were to convert to premium. this is the bread and butter. converting people from free to premium. we still need 1.3b to get fari valuation, and we divide by 7*12 for new subscribers pricing. then you also gotta factor the rise in cost from usage here so lets say they receive 30% margins. so net they will receive 25.2/year per subscriber. so they will need 51m subscribers of their 79m free subscribers to get to fair valuation.

we are also not taking int oaccount new subscrribers. they are growing this by 30%/yaer consistently. dash a lot. at a 150m, that means 50m new subscribers next year. so this is really why people are willing to overpay. cuz if you can convery 50% (25m) of these people and we assume 30% margins (84*.3*25m) or 630m in net income. you will reach fair valuation in 2 years.

personally. i dont want to touch it due to the competitors in the space. but this is prolyl hwat people are thinking. also the music groups are demanding more money even if margins were to expand, theoritically they need original content like nflx if they dont want prices to keep rising.

#6

Great service sometimes mean it isn’t charging enough hahaha