The shares of music streaming business Spotify were trading down this week. Prior to the US market opening today they were marked at 149.57. Spotify shares are, however, trading higher than their initial listing price. It begs the question – was all the publicity and market enthusiasm well founded?

In related news, Spotify said it was going into partnership with Hulu, to offer a $13 / month package that would provide consumers with both music and video. The alliance means that the due will be trying to break into Netflix’s back yard and steal some of its apples. It could very well succeed.

Currently the bundle is only available to subscribers in the US, so UK residents can’t get excited just yet. However, Spotify said that the service would be rolled out internationally in the course of the summer.

Spotify shares: what will happen on 24 April?

Potential buyers of Spotify shares will be awaiting a news conference on 24 April when the company is expected to provide details on further product enhancements.

Spotify has already focused minds on Wall Street by its decision not to go down the traditional IPO process, where one or more banks are retained at great expense to go around getting advance orders for the company’s stock and trying to work out what investors would pay for it on day one. Instead they just went ahead and listed on the New York Stock Exchange.

The valuation achieved was much higher than Spotify shares had been valued at in private transactions ahead of the listing, which goes a long way towards justifying this decision.

One good measure of a company’s worth, particularly one operating in the retail space, is whether you use its products, and whether you value them. Personally, I used to listen to music on iTunes. My kids got me onto Spotify because they were listening to its free service, which also includes advertising.

Having dipped into Spotify for a while, I got tired of the advertising, but I liked the service enough to actually pay for a family subscription, which I consider good value for money. The whole family is now streaming music through Spotify. We don’t touch iTunes anymore.

Scope for growth

This is a good demonstration of the Spotify business model at work. I think there is scope for growth beyond the valuation that Spotify has already achieved. It is very unlikely that we will hear bad news that will affect Spotify shares on 24 April. The company has obviously carved itself an important niche in the entertainment and technology spheres and seems intent on continuing to build on this.

Betting on Spotify shares, you are betting on Spotify’s ability to grow and to dominate the music and potentially the video streaming market. It has tough competition from Netflix and Amazon in video but this is not insurmountable. My household uses both Netflix and Amazon at the moment, but we’ll be looking with interest at the video service when it appears in the UK later this year.

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12th April 2018
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