Spotify Technology SA, the leader in the global on-demand music streaming space, is set to go public Tuesday amid a particularly rough patch for technology stocks. A major data scandal at Facebook Inc. (FB) took about $90 billion out of the social media giant's market capitalization, dragging down shares of FAANG peers including Apple Inc. (AAPL), Spotify's No. 1 rival. (See also: Millennials Keen on Spotify, Dropbox: Stockpile.)
As the Swedish company is slated to hit the public markets, the service remains a favorite around the world for paying subscribers who enjoy its highly personalized, curated music recommendations. Meanwhile, however, Spotify has been pressured by a more competitive music streaming business, where services make money with flat monthly fees and advertising. Competitors include online-radio pioneer Pandora Inc. (P), three-year-old Apple Music, Alphabet Inc.'s (GOOGL) YouTube, Amazon.com Inc.'s (AMZN) Alexa-powered music service and SoundCloud Ltd., which took off as a free site for emerging artists and DJs.
Cupertino, California-based Apple Inc. has doubled down on its music streaming platform recently as it builds up its software and subscription-based revenue streams in a larger hedge against waning demand for its devices and longer replacement cycles. The smartphone maker launched Apple Music after buying Beats Electronics LLC in 2014, quickly propelling itself to No. 2 in the market. Apple Music hopes to steal customers away from Spotify and competitors by offering easy integration with its devices such as its Apple Watches and HomePod voice-activated speakers, which do not sync with other services.
Plenty to Hear
Pandora, a free, ad-supported service with personalized music stations, has struggled to grow its listener base and ad dollars, representing a larger user exodus to services that allow listeners to play individual songs on demand. Last year Sirius XM Holdings Inc. swooped in with a $480 million investment, preceding a management shake-up that brought Sling TV's founding CEO to lead the company as it champions a turnaround. Pandora Premium, a new on-demand subscription service in line with the trends, touts nearly 5.5 million subscribers. The company intends to use years of data on music and users to help it build podcasts that it hopes will attract and retain listeners.
SoundCloud Ltd. has faced similar difficulties, forced to lay off 40% of its staff in 2017 and replace leadership after a near $170 million investment from Rains Group and Singapore's Temasek. The 11-year-old Berlin-based company says it reaches about 175 million monthly listeners and recently launched a subscription tier services called SoundCloud Go+ for $9.99 a month, offering access to 150 million unique tracks, alongside about 30 million songs also offered on rival platforms.
As for Google's YouTube, users spend twice as much time on the platform listening to on-demand music as all audio-streaming services combined, according to the International Federation of the Phonographic Industry and as reported by The Wall Street Journal. Given small payouts for its content compared to rivals, the search giant plans to combine its "All-Access" five-year old Google Play Music library platform and a paid version of its video-sharing service YouTube Red.
The AI Audiophile
Amazon's music streaming service has been boosted by its Alexa virtual-assistant technology. Last year, Alexa beat out smartphones to become the No. 1 way Apple Music users access the service. Amazon Music targets a more mainstream audience as the e-commerce giant funnels resources into improving Alexa, up against other artificial intelligence (AI) assistants from Google and Apple.
Come Tuesday, Spotify will surely be exposed to the wider market volatility hitting high-flying tech stocks. Bears will remain concerned about how the unprofitable streaming service can compete with its deep-pocketed rivals, while bulls will cheer factors such as Spotify's strong relationship with big record labels and its improving gross margins. It's also been suggested that the company may choose to reduce its reliance on record labels to provide artists a platform to reach fans directly. (See also: Apple Music Challenges Spotify Ahead of IPO.)