When Spotify (SPOT) landed in the competitive U.S. digital music marketplace last summer, it was boosted by a cresting wave of good publicity, strong track record in Europe and a $100 million investment funding round that valued the company at $1 billion.
That wasn’t all: Given the strong demand for Pandora and LinkedIn (LNKD) IPOs (and even stronger anticipation for the eventual Facebook (META) offering), Spotify CEO Daniel Ek’s timing for a U.S. launch seemed spot on.
Well, things have changed: Share prices for high profile tech IPOs such as Facebook, Zynga (ZNGA) and Groupon (GRPN) have tanked, and as Spotify readies to close its latest round of fund-raising, the company looks likely to fall short of its goal. Instead of the $4 billion valuation that Spotify initially sought, the company will likely settle for something “slightly more than $3 billion,” according to The Wall Street Journal.
But is the glass half empty, or half full? The Journal points out that for all the doom and gloom surrounding recent IPOs, tech companies are attracting high valuations:
AirBnb Inc., an online room rental site, is close to finalizing a new fundraising round expected to value the company at around $2.5 billion, according to people familiar with the matter. Mobile payments company Square Inc. recently raised a new round of financing from investors including Starbucks Corp. that valued the company at $3.25 billion, other people familiar with the matter have said. Like Spotify, Square had been looking to raise as much as $4 billion, these people have said.
And even at $3 billion, Spotify is outpacing one model for large-scale digital subscription services, says Peter Kafka at All Things D:
That would be Netflix, which has some 27 million subscribers at around $8 a month. Today, after Carl Icahn goosed it a bit, Netflix has a market cap of $4.3 billion. Spotify says it has 4 million paying subscribers at around $10 a month.
So if Spotify missed its goal, its latest round of fundraising still looks bullish, and if you’re looking for a reason why, you could do worse than to start with the conventional wisdom that investors have short memories.
Meanwhile, as the latest round of IPOs has shown, a lot can change in a year, and who knows what the market for tech stocks will look like if and when Spotify goes public. In light of that, it may be best to view Spotify’s valuation in light of another bromide: Timing is everything.
