Management Is Rushing the Spotify IPO

The music streaming service Spotity could be preparing for an IPO. The latest evidence: The company has posted an ad on its site and LinkedIn (LNDK) to hire a specialist in securities filings!

Spotify-ipoNow this doesn’t necessarily mean a Spotify IPO is imminent. If anything, such a hiring is probably a good idea for a company of its scale. Might as well be prepared for an IPO at any time, right? But there are still some good arguments that an IPO may come this year anyway.

Now it’s true that Spotify doesn’t necessarily need the money. Keep in mind that — back in November — the company raised $250 million at a $4 valuation. Some of the investors included heavy hitters like Technology Crossover Ventures, Northzon, Creandum, Kleiner Perkins, Digital Sky Technologies, Accel Partners and Goldman Sachs (GS). The influx of capital should alleviate the need for a Spotify IPO, at least during the short-run.

But then again, an extra dollop of money from a Spotify IPO could be a good idea. One reason is the potential threat of Beats, maker of headphones and earphones. The company recently launched its online music streaming service, and the marketing efforts have been intense. There was a Super Bowl commercial featuring Ellen Ellen DeGeneres, and since then, there has been a flood of ads with AT&T (T). It offers a family plan at $14.99 per month (up to 5 users) and an individual plan at $9.99, which are charged to the a person’s cell bill.

But of course, Beats isn’t the only tough rival to worry about. There are actually a host of operators like Pandora (P), Rdio, Songza, Google (GOOG) and Apple (AAPL).

Yet in the meantime, a Spotify IPO should benefit from the general enthusiasm for social stocks. Twitter (TWTR) is up 123% since its IPO in November, and Facebook (FB) has posted an annual gain of 137%, as the company has effectively transitioned to mobile. Pandora, which is up 192% during the same period.

So yes, the timing looks good. More importantly, there may be urgency for a Spotify IPO, as the company may be experiencing a deceleration of growth. According to Reuters, it had more than 5 million paying customers in 2012. But if you check out the Spotify site today, it notes that the company has only reached 6 million. That’s not an encouraging growth path.

And if that slowdown continues, it could make a Spotify IPO far from a slam dunk. In other words, it should be no surprise that the company’s management appears to be getting more serious about an offering. Better to pull off a Spotify now,  before investors get worried about growth.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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