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

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

#141

Post by iofj »

rdli wrote: post #57

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 fr…

When you calculate what position this actually buys the banks, assuming Spotify doesn't go bust, this loan has a 30% interest rate for the first year.

So if you calculate it out, it means the bank demanded to have their money back (at least in theory/balance sheet) in 8 months and 2 weeks. This likely allows the banks to actually take this risk (ie. defend it to their board/shareholders).

On the other side this allows Spotify to say that they've gotten a "cheap" loan, and even that they've "avoided dilution", when in reality it's a very expensive loan that dilutes quite a bit (how much depends on the valuation at IPO, but at the "current valuation" of 8.5 billion it dilutes 16%. If the valuation is less or the IPO gets delayed it dilutes more, up to 100% at about $1.4b or lower valuation, at which point shareholders and employees lose everything they have invested in the company). It doesn't keep the 30% rate over time, but I bet that came at the cost that the bank also have some way to foreclose on the loan.

Effectively to value of Spotify (money you get when buying the whole company) went down somewhere between 300 million and perhaps up to 600 million because of this deal. And that's ignoring the other loss shareholders get because of this deal, after all debt is senior to equity, there's the equity conversion and pre-selling, which is going to mean the stock price will go down a bit before any stockholder can sell.

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

#142

Post by joshdickson »

Splines wrote: post #112
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 majority of their costs come from buying content. In 2014 they spent 70% of their revenue on labels and artists. Fundamentally they have a bad business model. Good on them for ditching Taylor Swift - while she is very popular the financials likely showed the ROI for having her on the platform was negative. IMO Spotify is going to either need to change how their business works or make some painful cuts to become s…

Spotify did not ditch Taylor Swift, you have it backwards. She has been quite outspoken in pulling her content off Spotify, not the other way around. Same reason why Adele's 25 is not there.

The ROI is not negative for major artists. Missing major artists creates "holes" in people's listening habits, and they start getting fed up with the service the more of them that are missing, and that leads to cancellations and churn. Spotify would take her or Adele or whoever else has pulled their content back immediately if possible.

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

#143

Post by pathy »

nerfhammer wrote: post #28
draw_down wrote: post #18

Earlier quoted context omitted.

Surprise surprise, employees lose out again. But I guess they were already in danger of getting nothing if this is the deal management struck.

The glassdoor reviews seem to universally complain about poor stock compensation, so it seems they weren't getting much to start with.

That is likely more to do with them being Swedish I suspect.

Stock compensation is a lot less competitive here due to it being taxed as normal income for the most part. Not to mention salaries being a lot lower in general than USA or some other parts of Europe.

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

#144

Post by kgwgk »

rokhayakebe wrote: post #114
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…

But if they cut down spending 10-15% they could be profitable.

According to the Guardian article cited in another comment, it seems that they spent roughly 880mn in royalties, 180mn in personnel and 180mn in other costs. If royalties are what they are, they would have to cut 160mn in the 360mn personnel & other sections (45%) to be profitable. (I'm talking about 2014 results here, the numbers are probably different now).

Edit: actually, according to the article, the 880mn correspond to "royalties & distribution". There is more info about these numbers at http://www.musicbusinessworldwide.com/how-can-spotify-become...

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

#146

Post by nostalgiac »

andyjohnson0 wrote: post #145

"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." Anyone care to explain what this means?

If they raised it as equity, they would have to give away a percentage of the company - which gives a 'valuation' to it.

So, if they raised $1B for 10% equity, the valuation of the company's worth would be $10B.

To avoid this hassle entirely, they raised it as 'debt'. The reason being, if they had to give away more than 8.5% of the company for the $1B, the company's valuation would have gone 'down' which can give off a bad vibe/look.

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

#147

Post by davelocity »

p4wnc6 wrote: post #107
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…

I've always been very put off by their rah rah support for Agile. In many ways, I think Spotify cargo cults on the Netflix culture document, but they don't actually have a tech culture identity that they've created for themselves, they just make a big fuss about Agile, oppressive open-plan spaces, and fancy parties. I think Spotify is a great example of why job candidates should look before they leap when it comes to…

> I think Spotify might actually do better by creative innovative new engineering features and improvements

If the problem is user acquisition, you don't get there with engineering improvements. Only exception is if those tech/product improvements are for increasing virality.

Yes they'll probably spend the money on marketing / PR, which makes sense since that's likely where the bottleneck (or foreseeable bottleneck given the other players in the industry) in their business is now.

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

#148

Post by LoSboccacc »

Gustomaximus wrote: post #9

The value seems OK if there is a good IPO (>10 billion) in the near future. I think the issue is now Spotify largely HAVE to IPO quickly and successfully. This is a big risk as with the current bear market that could easily deteriorate further creating a situation where the business would be better waiting for for a few years. And they are now cornered into not taking an IPO, or not taking it at great cost. And I wou…

IPO during difficult times are a sure way to bust the valutation. Especially if you IPO after peak growt.

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

#149

Post by staticelf »

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.…

Groove (xbox music) has a desktop app and it runs a lot better than Spotifys. Also Tidal has a desktop app that also runs better.

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

#150

Post by f_allwein »

x0x0 wrote: post #109
danieltillett wrote: post #102

Earlier quoted context omitted.

What I don’t understand is why they are raising this money? Do they expect that they are about to get into an all out war with Apple?

All out war for streaming customers with apple and google. Someone is going to collect $10 (plus $1 or $2 increase every couple years) per month for a huge segment of the music listening population for basically the rest of our lives. Spotify want it to be them.

Still waiting for competition to affect prices. Eg I would be happy to pay 5$/month for limited, ad free access to Spotify/ whatever, but 10$ seems excessive. Given that we may indeed pay this for the rest of our lifes, it's strange nobody seems to mind the cost.
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