SAN FRANCISCO – Spotify picked up more fans on Wall Street on Tuesday as investors gave the unprofitable company a warm welcome in its stock market debut.
After several hours of anticipation, Spotify’s shares traded as high as $169 before falling back slightly. By the early afternoon, the stock was still hovering around $150 – well above its previous high of $132.50 in deals worked out during Spotify’s 12-year history as a privately held company.
The stock market’s rousing reception left Spotify with a market value of about $28 billion, according to FactSet. By comparison, internet radio station Pandora Media’s market value stands at $1.2 billion nearly seven years after that company went public.
The good vibes surrounding Spotify stem from its early lead in music streaming – a still-evolving field trying to hook people on the idea that it’s better to subscribe for online access to millions of tunes than to buy albums and singles.
Spotify has struck a chord with 71 million worldwide subscribers so far and is aiming to increase that number to as many as 96 million subscribers by the end of the year.
By comparison, Apple’s nearly 3-year-old music streaming service has 38 million subscribers. A list of other formidable competitors that includes Google and Amazon also offer similar music streaming services, raising the specter of Spotify being wiped out by far richer rivals.
Spotify’s early lead in music streaming has drawn comparisons to Netflix, which built upon its pioneering role in DVD-by-mail rentals and then video streaming to create a hugely successful, subscription-driven franchise that has produced spectacular investment returns and left the company with a market value of $122 billion.
A $10,000 investment in Netflix’s 2002 initial public stock offering would now be worth more than $2.6 million, leaving some investors wondering if Spotify might be on a similar trajectory in music streaming.
“The similarities here, we believe, are much greater than the differences,” RBC Capital Markets analyst Mark Mahaney wrote in a recent research note assessing the parallels between Spotify and Netflix.
Besides blending technology with a subscription model to reshape a popular form of entertainment, Spotify and Netflix have a common executive in their lineage. Spotify’s current chief financial officer, Barry McCarthy, held the same job when Netflix went public and remained in that position until leaving the video service in 2010.
Unlike Netflix, Spotify still isn’t profitable, having lost more than $3 billionsince it started more than a decade ago. Spotify has also made it clear that it intends to remain focused on adding more subscribers instead of making money for now.
Netflix has also set itself apart from its rivals in video streaming by spending billions on original programming such as “Stranger Things,” and “The Crown.” Analysts are worried that will be more difficult for Spotify to do because it is primarily negotiating for the same music streaming rights as Apple, Google and Amazon – companies that can afford to pay even more, if they want.
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