24 October 2017


If you thought the now-infamous Goldman Sachs report on music streaming was optimistic, you ain’t seen nothing yet.

According to a new paper from investment bank GP Bullhound, Spotify could be valued at $20bn by the time it goes public later this year or early in 2018.

What’s more, say the firm’s analysts, Spotify’s subscriber base is set to grow from the60m announced in July to 100m by summer next year.

From there, says GP Bullhound, the streaming platform’s user base could hit half a billion (500m) people by 2020 – with 200m of them paying subscribers.

And here’s music to Daniel Ek’s ears: Bullhound says Spotify now has a “long-term potential of being valued at $100bn”.

Yes, $100bn.

The quote in full: “Given that Spotify’s growth continues and that emerging market growth keeps average revenue per premium subscriber relatively in shape we envision that Spotify has a long term potential of being valued at $100 billion.”

Just think. That’s only a seventh of what Google is worth today.

Before we get into the detail, it’s probably worth mentioning that GP Bullhound, like Goldman Sachs before it, is an investor in Spotify.

Make of that information what you will. Now, back to the breathless fantasizing.

GP Bullhound says Spotify’s faster-than expected growth is likely to be driven by more favorable deals with labels, in addition to increased penetration in emerging markets.

According to CNBC, there are also a couple of notes of caution in Bullhound’s report, however.

“Spotify have introduced family plans and student discounts and if we factor in that emerging markets have a much lower average revenue per premium subscriber we believe that Spotify will see a steady decline in revenue per premium subscriber moving towards 2020 compared to today’s value,” it reads.

“This is the reason why we have decreased our estimated average revenue per premium subscriber to $80 — compared to $88 in 2015 and $89 in 2016.”

Despite this average Spotify subscriber spend going down, the ad-funded element of the service could, according to the investment company, result in higher revenues from ‘free’ users than previously anticipated.

As for Spotify’s now-infamous operating losses, Bullhound doesn’t see them going away anytime soon.

Such deficits could “distract investors from the true value that is being created,” said the company.

It’s not wrong: Spotify’s operating loss last year was a pretty distracting figure: the best part of $390m.

Its net loss was even more distracting: $600m.

Bullhound says that for every dollar Spotify invests in a premium subscriber, it currently gets $3 back.

The company thinks this return could increase to $5 by 2020 as revenue per user stabilizes, churn decreases, and gross margins improve.