Market Prediction: A New Entry in the Race to $1 Trillion
By: Steve Smith
Expensive, but a Great Value
Like most platform/network players, the firm is “investing” — Latin for hemorrhaging money. Spotify lost €378M, on €4B, this year.
As I write this, Spotify stands at $150/share. At $28B in value, or 5x revenues, it’s trading at Amazon-like multiples (expensive). However, it’s hard to see why Amazon or Netflix wouldn’t endure 7% and 25% dilutions, respectively, and pay $50B+ to cement a leadership position in what may be the last media battleground — music. Netflix would be the dominant streaming company, vs. just video streaming, and Amazon would further buttress the intensity across the two-thirds of households that are Prime members. So, is Spotify worth $28B in its current state? Maybe. But it’s worth $50–100B to one or more of the Four.
Prediction: Spotify stock doubles in the next 12–24 months.
What takes Spotify to $300 Billion, and true horseman status? They launch video, and become the most successful streaming entertainment firm, full stop. Netflix’s legacy is on the second most important screen, TV. Spotify was raised on the most important – mobile. Netflix needs to become Spotify before Spotify becomes Netflix. Nobody has cracked social and TV, and as half of young people no longer watch cable TV, if Spotify were to launch video and captured any reasonable share and engagement via unique playlists, then cable and Netflix would begin ceding market cap to Spotify.
Many of us would rather have a playlist / curation from friends of the great art form of our age, TV, in addition to music. It would lead to better distribution and sharing. Spotify now means streaming music – it could mean social entertainment. It’s also a better model than Facebook or Google, as 90% of revenues are from subscriptions. We’ve come to the realization that social is nicotine (addictive, but not that bad for you), but advertising is the shit that gives you cancer (tobacco). The quest for more ads and engagement renders these firms arms dealers that traffic in rage and negligence. Subscription-based media won’t be saddled with a parent company tempted to tear at the fabric of our society to make their numbers.
It took Spotify 12 years to become a unicorn. In another 3–5, it could be a horseman.