Seeing quite a bit of skeptical analysis of @Spotify business over the past few weeks. In light of IPO filing, there are also some great deep dives, including this great podcast from @benthompson, exponent.fm/episode-144-90… … Negative view highlights cash losses and label power.
I would offer the following in defense of Spotify. Can anyone name an alternate execution strategy that would have resulted in a higher equity value for the company? I would argue the answer is no. I think @eldsjal and company have basically optimized value creation.
Here is why: Had Spotify traded growth for profits, they would be marginally profitable, and have fewer users (and would be worth less). It is in Spotify's best interest to be bigger and bigger, and the low cost of capital makes this trade-off possible.
I for one believe that Spotify is a very valuable strategic asset to at least three companies with monstrous market cap. Therefore, Spotify's value = a % of the average of these three companies market cap ($819B). More members is better for this %.
When you consider these three large companies are betting big on voice input, music (and enabling easy selection and playback) is super important. I would bet quite a bit of money that every one of the three have discussed this potential acquisition.
Will Spotify eventually struggle because they can't generate meaningful cash flows? Of course that could happen -- but (1) being bigger is better [they don't have negative marginal costs], and (2) I stand buy the argument that the team has executed optimally.
Product is also getting better over time. Example: the Daily Mix product is fantastic & leverages the size of the overall user base. This type feature, along with the use of personal and shared playlists, makes switching much harder & raises barriers to entry (even for big 3).
