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Spotify Leads the Unicorns to the Public Market

Spotify's public offering may be the death of this market


Spotify, a money-losing music streaming service, seems poised to go public on the New York Stock Exchange this fall through a “direct offering,” in which owners offer their shares to the public market rather than the company issuing new stock.

Spotify Leads the Unicorns to the Public MarketThis is supposed to test the direct offering model, which hasn’t been used on a big operation since Freddie Mac went public in the late 1980s.

But it will also test the true value of unicorns, private companies with valuations of $1 billion or more. Investors, in turn, should be asking if the smart money wants out, what do they really think of their investment?

An AOL Moment for Spotify

The dot-com bubble of the late 1990s crashed in early 2000 when America Online, in effect, bought Time Warner Inc (NYSE:TWX), taking over half the equity in the combined company. This seemed great for AOL shareholders, but it also put a ceiling on the value of internet assets, causing them to then seek a floor that did not exist.

I have been waiting for such a moment to hit the present market. Big technology companies are the only things that are working now. Except for, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL) and a few others, the market is drifting, maybe even falling slightly. Banks are down, oil is down, and retailers are down for the count.

But we don’t know the maximum price for internet assets. That’s partly because the supply of internet stocks worth buying is constrained by the unicorns, who have used private money to reach staggering valuations but haven’t cashed out through the public market.

Spotify looks like just the first break in that wall. AirBnB looks set to follow. Other unicorns are stirring in the corral.

What Are You Getting?

So, is Spotify worth buying?

An S-1 statement has not been issued, but according to leaked financial reports, the answer is no. Last year, Spotify is said to have had operating losses of $333 million-$444 million on revenues of about $3.1 billion. This is said to have compared with losses of $205 million on revenue of $2.2 billion the year before.

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