There are a lot of music tech companies with eyes on their big score, commonly known as the IPO. Streaming music service Spotify is likely to be the next music tech company in line for the brass ring, but much depends on Twitter’s stock price over the upcoming months.
The influence of Twitter stock over music tech has been hotly debated recently, with Billboard’s Glenn Peoples stating that it will have little effect, while industry analyst Mark Mulligan claiming that the effect can be substantial. If you can’t already tell, I come down on Mulligan’s side, mostly because so much of the stock market is based on perception.
Have you ever noticed that if a company’s quarterly profit doesn’t meet an analyst’s prediction, the stock price declines? This happens even if the company had what many might consider a good quarter where it was profitable and only missed the analyst’s prediction by a point or two. The reason for this? The perception that there must be something seriously wrong under the company’s hood if the arbitrary goals set by the analyst haven’t been met, regardless of how unreachable they might have been in the first place. Then there’s the case of how the stock price of a company can tank if a negative rumor gets out in the wild, even if it’s far from being true. That’s because stock prices are built more on perception than reality.
Of course that means that how Twitter does in the market will affect any tech or music tech company who’s IPO comes after it. Facebook already put a chill in the tech market when its stock didn’t perform as expected (there’s that perception thing again). Even though the stock has come back to trade above its IPO price of $38 (it’s trading around $46 today), the general feeling about it was negative and that had rubbed off on the Internet tech sector as a whole.
But Twitter may have changed that perception for now, trading at around 60% more than its IPO price today, and that makes all things tech look much more desirable as a result. Of course that’s as long as the stock stays that way, because if it should slide from this point forward back to its IPO price, the market again will run scared on tech IPOs, probably preventing a number of them (especially from the music sector) from happening until another “winner” emerges.
So how does that specifically affect Spotify? For the company to have a future healthy IPO, Spotify needs two things to happen – Twitter’s stock has to remain strong to keep the market anticipation high, and the number of its paid subscribers has to increase. According to its own published stats, the service currently has 24 million active users world-wide and 6 million paid subscribers, but I expect that those numbers would have to grow by at least a factor of three for investors to begin to feel comfortable.
Most of the predictions for the streaming side of the music business predict somewhere around a 10 times growth in subscribers over the next 5 years. That’s both good news and bad news for Spotify, since that means there will be more potential users in the marketplace. The bad news is that there will be more competitors for those subscribers as well, with the very potent Deezer about to enter the US market along with YouTube Music and Beats Music. Of course there’s still the big existing services like iTunes Radio and Pandora who will get their slice of subscriber growth, even though these services are different in that they’re more radio-like than on-demand.
So keep an eye on that Twitter stock price. It’s influence will be great and wide not only in tech in general, but music tech specifically over the next year or so.
