Spotify shares were very much in the financial news in April of 2018 at the time of what many described as that company’s IPO, though it was, in fact, a re-allocation of Spotify shares that had previously been privately held. What were the pros and cons of trading in these shares and is it possible to study historical trends to give some trading tips for the future?
The pro side of Spotify shares is easily described. Put simply, the Stockholm based giant of music streaming is the leader in its sector. Spotify had, in 2017, 157 million users all over the world, 71 million of whom were paying customers; in comparison, its closest rival, Apple Music, has 38 million users all told. Spotify is already a large concern, estimated as having a value of $19 billion in 2017. That year saw revenue of $4.99 billion generated, an increase of 39% with increases in gross margins as well. The potential market for streamed music is a large one, estimated at 125 million and will probably grow as the world’s tech-savvy population comes into adulthood. Spotify’s customers are most satisfied with the service they receive, and the company enjoys a large profile among its many potential customers. These are a hefty set of pros to set in the profit column of the Spotify shares’ accounts.
The con side to Spotify shares is equally shortly described, and observers of the tech sector will notice many points in common with another large tech IPOs and subsequent share performance. The truth is that for all that Spotify enjoys leadership in this expanding market, and for all its large and mostly satisfied customer base, Spotify does not yet operate at a profit. Indeed in 2017, the company’s losses rose from $662 million to almost $1.5 billion, and although Spotify increased its customer numbers by 2% in that year, Apple Music increased it’s by 5%. So, all is not as rosy as it might look at first for Spotify shares. Many analysts and observers of the tech sector have been quoted as wondering whether the company can ever make a profit.
A final point on the matter of Spotify shares is the fact that the majority of the large tech IPOs over the last few years have been followed by a hard subsequent twelve months in the market. For eight out of ten of the last tech, IPOs have seen eight of them experiencing between 25% and 71% losses for their first year. Whether this is related to the problems of low or negative profitability, equally common to many tech IPOs, is for others to predict. However, the factor germane to the purchase of Spotify shares is that difficult first year. If you are interested in buying Spotify stock then it will be worth your while to be cautious initially and also to keep a keen eye on Spotify’s business plan for the future, to see if potential can be turned into profit.
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