Spotify raises $1B in debt with devilish terms to fight Apple Music • Hacker News Board

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#51

Post by mrep » Wed, Mar 30, 2016, 1:49 AM UTC

joshjkim wrote: post #40

Negative1 wrote: post #15

This is significant. It shows a do or die attitude and a fact that many companies at this level are not self-aware enough to recognize; that their competition (Apple) will kill them, or, they will dominate this space. Will be interesting to see how this plays out.

Good point - it's all or nothing for Spotify, they are not profitable at current scale and need critical mass re: subscribers + defense against Apple, and if they don't get there, then they are dead anyhow.

> they are not profitable at current scale

How? They are making approximately a 1 billion dollars a year (30 million subscribers * $10/month * 12 months/year * 30% cut). Their engineers are probably paid less too since they are not based in the US.

The only thing i can suspect that they are blowing that much money on is marketing but even that just seems ridiculous unless they are losing that much on the freemium users.

Can someone explain this to me?

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#52

Post by zevyoura » Wed, Mar 30, 2016, 1:50 AM UTC

estreeper wrote: post #49

This doesn't seem that surprising. 2014 Revenue: $1.3 billion (up 45% from 2013) 2014 Net Loss: $197 million (up from $68 million loss in 2013) That's a lot of money to be bleeding and losses are increasing even as revenue grows. If you wondered why they got terms like this, that would explain it. You can call it getting "strategic resources" if you like, but I call it running out of cash. http://www.nytimes.com/2015…

From the article: "A source familiar with Spotify’s finances tells me it still had €570 million still in the bank, so there was no gun to its head to raise this money."

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#53

Post by jsjohnst » Wed, Mar 30, 2016, 1:53 AM UTC

chvid wrote: post #48

joshjkim wrote: post #2

"TPG and Dragoneer can sell their shares just 90 days after the IPO, before the 180-day lockup period ends for Spotify’s employees and other investors." Among many the bad terms disclosed in the article, IMO this is probably the worst - basically, this right is a license to cash out and torpedo the company within 3 months (just the right amount of time to see how the market reacts to Spotify's first earnings call as…

Would it not be possible for an employee to hedge/short-sell the stock using i.e an option?

I'm not familiar with Spotify's terms with employees, but it's not uncommon for this to be expressly forbidden in the stock option / Rsu grant agreement.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#54

Post by jzymbaluk » Wed, Mar 30, 2016, 1:53 AM UTC

nperez wrote: post #45

Is it really just Apple? They have money to throw around, but not a well received product yet. Meanwhile, there's Play Music, Youtube Red, Soundcloud, Pandora, Bandcamp.. Things could change, but right now I think Google is more competitive because they offer two bundled services that are both superior in design (IMO). If Soundcloud can survive financially, they are very competitive for those seeking music discovery.

You're right, I think people severely overlook Google Play Music when they talk about online streaming services. It's close to the same price as all the competitors, but the music library is much more thorough. I listen to some semi-obscure music and I've had trouble finding some of the bands and albums I like on Spotify and apple music, but I've never not been able to find an album on either Play Music or YouTube. Plus ad-free videos on YouTube mobile is a very nice extra feature

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#55

Post by hkmurakami » Wed, Mar 30, 2016, 1:53 AM UTC

deegles wrote: post #20

joshjkim wrote: post #4

Earlier quoted context omitted.

Oh, and I would not be surprised if Apple basically times major announcements re: Apple Music (subscriber numbers, if good, or new product features, etc.) around Spotify's IPO date and first earnings call to kill the pricing on both front - if I were Apple, I know I would =)

Why would Apple care about Spotify's stock price?

One way to leverage a high stock price is through all/part stock M&A transactions.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#56

Post by criley2 » Wed, Mar 30, 2016, 1:53 AM UTC

philliphaydon wrote: post #50

Spotify waste so much money on their employees, who effectively do very little. I know a designer who has been there 2 years, basically sits in meetings and gets sent to different countries, and has added nothing to their portfolio. Yet gets reviews and raises and bonuses... Then there's all the parties they host for their employees, etc. It's not a company I would invest in if I had any money to begin with. Also tha…

The modern desktop app is at a point where it's pretty solid, but I still miss that old 0.80.x branch or whatever the final non-chromium verison was.

But you know what? Google doesn't have a desktop app for Google Music. Amazon doesn't have a desktop app for Amazon Prime. Apple doesn't have a desktop version... so yeah, despite the fact that Spotify's only-one-in-the-business desktop app isn't perfect, it does exist... (and I do use it every day between Android and two desktops and I think it works pretty ok)

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#57

Post by rdli » Wed, Mar 30, 2016, 1:54 AM UTC

Not sure why it's so devilish. They basically raised $1B in cash on a 20% discount, no valuation cap. Basically, they're agreeing with the investors that they can't figure out a valuation for the company -- so they're deferring that until an IPO and have the public market sets the valuation.

There's a lot of bellyaching here about the dilution for the existing shareholders. But I don't see how that's any different from an equity raise -- you're still diluting.

Now, the risk with convertible debt is that there's no valuation FLOOR so the company is betting on itself to execute -- and if they miss expectations, that's a problem.

The different lockup period is a bit of a concern, but the reality is that no institutional investor can sell a 10% (or whatever) stake in a public company overnight. So they capture a little bit more upside but it's not that material in the scheme of things IMO.

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#58

Post by hkmurakami » Wed, Mar 30, 2016, 1:55 AM UTC

owenversteeg wrote: post #10

Jesus Christ, that's not clickbait, those really are devilish terms. It's debt, they lose $200MM of shares at the time of IPO, and they very well could end up paying 15% interest yearly on this. And when the IPO happens, if it follows the general IPO trend and tanks at first, it's very possible TPG and Dragoneer will want to get out -- dumping 1.2 billion of Spotify onto the market and absolutely destroying the share…

>Spotify also has to pay 5% annual interest on the debt, and 1% more every six months up to a total of 10%.

Fwiw I'm parsing this as the interest to service the debt topping out at 10% rather than 15% (which imo is a pretty big difference)

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#59

Post by wildmusings » Wed, Mar 30, 2016, 1:55 AM UTC

>By raising debt rather than equity, it doesn’t have to worry about poor signaling from a down-round raised at a lower valuation than the $8.5 billion it set in June 2015.

How is the signaling from this any better? It still plainly reveals that the previous valuation is not representative of reality. The only difference is that we don't have another imaginary number to outright replace it with. And can we all agree to stop parroting valuation numbers based off investors buying preferred stock?

Re: Spotify raises $1B in debt with devilish terms to fight Apple Music

#60

Post by pfg » Wed, Mar 30, 2016, 1:56 AM UTC

criley2 wrote: post #56

philliphaydon wrote: post #50

Spotify waste so much money on their employees, who effectively do very little. I know a designer who has been there 2 years, basically sits in meetings and gets sent to different countries, and has added nothing to their portfolio. Yet gets reviews and raises and bonuses... Then there's all the parties they host for their employees, etc. It's not a company I would invest in if I had any money to begin with. Also tha…

The modern desktop app is at a point where it's pretty solid, but I still miss that old 0.80.x branch or whatever the final non-chromium verison was. But you know what? Google doesn't have a desktop app for Google Music. Amazon doesn't have a desktop app for Amazon Prime. Apple doesn't have a desktop version... so yeah, despite the fact that Spotify's only-one-in-the-business desktop app isn't perfect, it does exist.…

Apple's desktop version is iTunes.