It turns out that 2017 might not be the year of Spotify’s IPO after all.
Spotify’s goal had been to go public in the second half of 2017. By the numbers, Spotify is the most successful music streaming service in the world, with the most paid subscribers. But Spotify, after a decade in business, is still having a hard time making any money.
Spotify is now reportedly weighing a plan to delay an IPO until 2018, said TechCrunch, giving the company additional time to build up a better balance sheet and shift its business model to fixed pricing as a way to improve its margins.
Spotify has over 100 million users, 30 million paying customers and reported sales of $2.2 billion as of last summer. But it also has some very expensive contracts to pay out to the music industry, public filings show. Spotify paid out $1.8 billion in licensing fees in 2015.
Record labels — and in particular, the big three: Universal, Sony and Warner — take home about half of Spotify’s sales. As of September 2016 — the last time Spotify publicly updated its figures — the company reported that it had cumulatively paid out some $5 billion to music rights holders.
“It’s hard to build something sustainable around the revenue model as it exists today,” a source was quoted by TechCrunch as saying. “If anything, a delay of the IPO window could give the market, Spotify’s (label) owners and the management a little more time to recreate something.”
Spotify has tried to negotiate its licensing rates down, but music labels have countered that Spotify already pays a submarket rate. The company needs a deal in place before it can IPO, and the firm’s last billion-dollar funding round included terms that allow investors to convert their stakes into shares at a 20 percent discount to the IPO price. That discount grows over time.