In some ways, Spotify’s official filing to go public extends much of the same narrative it has heralded to the music industry over the past few years. The company’s paid user base continues to flourish, increasing by 46 percent year-over-year to 71 million subscribers in 2017, out of 159 million total monthly active users. Both revenues and net losses ballooned last year as well, reaching $5.02 billion and $1.51 billion, respectively. Despite these losses, Spotify notably has no more outstanding debt — thanks to a deal that saw two of its shareholders, TPG and Dragoneer, convert their debt into equity and sell their shares to new Spotify investor Tencent.

Such growth also mirrors widening consumer adoption of streaming services across the board. The Consumer Technology Association tells Billboard that U.S. consumers will spend $6.6 billion on music streaming alone in 2018, with spending on both audio and video projected to grow 35 percent year-over-year to $19.5 billion (not including music offerings bundled into larger packages, such as with Amazon Music and Amazon Prime).

But the factors contributing to this growing revenue pie — including but not limited to the rise of smart speakers and the gradual adoption of paid streaming in certain international markets — are the same thorns that prick at Spotify’s future financial trajectory as a public company. While Spotify may be the current leader in its space by market share, it still has neither the truly global reach nor the diversified revenue streams of rivals Apple, Google and Amazon to paint a clear-cut path to profitability.

Below we look at four key growth challenges reflected in Spotify’s SEC filing, and whether public-investor scrutiny can discipline the company to find viable solutions.

1. Global market expansion, and intense local competition

According to the filing, Spotify currently operates in 61 territories, compared to over 100 territories for Apple Music. Europe comprises the former’s largest market (and headquarter continent), accounting for 37 percent of its user base, followed by North America at 32 percent and Latin America at 21 percent.

That leaves a mere 10 percent for Asia, Africa and Australia combined — which Spotify curiously buckets into the umbrella term “the rest of the world” instead of breaking out that share by continent, perhaps due to lack of robust proof of market viability there.

On one hand, Spotify now has a concrete financial interest in emerging markets, particularly in East Asia. In Dec. 2017, the streaming service bought a 9 percent stake in Tencent Music, a deal valued at $12.3 billion (the value of Tencent’s reciprocal stake in Spotify was not disclosed in the SEC filing) that confirmed China’s blossoming influence on the global media and entertainment stage. Moreover, “the rest of the world” at large has seen the fastest monthly-active-user growth for Spotify at 51 percent year-over-year, compared to 31 percent for Latin America, 26 percent for Europe and 23 percent for North America.

On the other hand, there remain significant cultural and commercial challenges to onboarding local users and growing that 10-percent user share in a meaningful way. Firstly, some markets have been slow to take the extra step beyond free streaming and pay for a subscription offering. For example, Spotify is expected to launch in South Africa later this year, but music streaming in that market generated a total of only $8.15 million in revenue in 2016 (although this also indicated triple-digit growth year-over-year).

In Latin America, even though Spotify’s SEC filing reveals that it has a 42 percent market share of streaming in Brazil — director of economics Will Pagesaid in Apr. 2017 that Spotify’s user base in Brazil could soon outnumber those in the U.K. and Germany — the vast majority of these Brazilian users are ad-supported, and premium music ventures have lower than 15 percent penetration in the market on average, according to MIDiA Research.

Spotify warns investors in its filing that costs will only continue to increase in the coming years, in part due to rising investments in international marketing and field sales teams. “Monetizing our ad-supported user base has historically been, and is expected to remain, more challenging in our two fastest growing regions, Latin America and the rest of the world, compared to Europe and North America,” reads the filing.

Other markets have been slow to adopt the streaming format entirely, leaning heavily instead on physical sales. Spotify launched in Japan in Sep. 2016, sensing an untapped opportunity to conquer the world’s second-largest recorded music market — but the company has attracted only around 200,000 paying subscribers in that country to date, sources tell Billboard. The latest stats from the RIAA show that physical sales (CDs and vinyl records) still account for nearly 80 percent of all recorded music revenue in Japan, in part because several CD packages come bundled with tickets to live shows and VIP meet-and-greet events.

One positive commonality that Spotify sees among all of the aforementioned markets is that mass adoption of smartphones will be a key driving force behind rising subscription revenues. “In a number of countries where we do not currently operate but may have the opportunity in which to expand in the future, we believe there will be an additional 1.4 billion payment-enabled smartphone users by 2021, excluding China,” reads the filing. “As a mobile-first platform, we believe we are well-positioned to benefit from the growth in global smartphone users.”

But, as is the case in China, Japan, India and several other markets, the smartphone manufacturers themselves own the streaming services installed on their devices — creating intense local competition for Spotify and other Western players.

2. Competition with terrestrial radio and big-tech behemoths for physical distribution channels

While Spotify may have “disrupted” music from a business-model perspective, its public offering will cement its status as a corporate institution that must compete head-to-head with other incumbents.

In its SEC filing, the service lays out one key battle frontier for 2018: “gain[ing] market share from traditional terrestrial radio.” While terrestrial radio still attracts significant marketing dollars from major labels, it lags behind streaming services on tech-savvy targeting capabilities. Spotify intends to compete with radio by focusing on advertising: delivering more granular data about consumers and building more democratized ad services, such as a self-serve audio ad studio.

Indeed, Spotify’s programmatic and premium video ads (e.g. Branded Moments), neither of which are traditionally available through terrestrial radio, are outpacing overall growth at the company. Programmatic increased in revenue by 100 percent year-over-year and drove a 31 percent increase in impressions sold, while premium video increased by 74 percent and accounted for 29 percent of total ad-supported revenue.

But none of this eradicates Spotify’s biggest obstacle to overtaking terrestrial radio, which is actually the same bump it faces against public tech conglomerates: owning the physical distribution channel for music. Terrestrial radio still owns the car, while tech conglomerates dominate the battle for smart speakers and voice-enabled devices.

The U.K. paints a compelling picture of this battle: while Spotify does have a 59 percent market share of streaming in the country, all streaming services combined account for only 15 percent of music listening hours there, versus a whopping 52 percent for terrestrial radio, according to research by AudienceNet. One reason why voice-activated speakers are so important for the music industry is not just because they encourage buyers to listen to more music, but also because their mass adoption might finally turn the stubborn, imbalanced distribution of music listening hours on its head, by making streaming a more convenient listening experience than terrestrial radio.

Sensing this tectonic shift, Spotify already has its first physical products in the pipeline, hiring a brand-new team to handle manufacturing, sales and marketing for hardware. This is perhaps an effort to free itself from relying on the crowded marketplace of big-tech mobile gatekeepers to voice: Amazon Echo, Google Home, Apple HomePod, Sonos One – the list goes on.

But the hardware space at large “has been a graveyard for a lot of people,” Duncan Davidson, general partner at Bullpen Capital, tells Billboard. “It’s not clear to me that it will become a defining business for Spotify, nor that it will meaningfully change their underlying licensing equation that gives the labels the lion’s share of their money.”

Even in its own SEC filing, Spotify recognizes that it may be too late to the game. “Some of our competitors … have developed, and are continuing to develop, devices for which their music streaming service is preloaded, creating a visibility advantage,” reads the filing. Spotify owns no such devices, so must burn more cash to increase its visibility across platforms, which will be difficult given its negative profit picture.

3. Technology versus content: which comes first?

One day after filing to go public, one of Spotify’s most influential and public-facing curators, Tuma Basa (former global programming head of hip-hop), abruptly left the company. As Billboardreported Friday (Mar. 2), Basa has tapped YouTube as his new professional home, just as the video service is building a new subscription offering of its own, internally named “Remix,” that merges YouTube Red and Google Play Music.

The internal shakeup was perhaps a signal to Spotify’s shifting product priorities away from mass-market, top-down content toward more personalized, tech-driven solutions, which comes into sharper focus in the SEC filing. “We believe that personalization, not exclusivity, is key to our continued success,” reads the filing, which also reveals that all of Spotify’s hand-curated, owned-and-operated playlists accounted for only 15 percent of the service’s monthly consumption hours in 2017, versus 17 percent for personalized and algorithmic playlists and 36 percent for user-generated playlists.

In addition, Spotify’s employee distribution across internal functions proves that it is first and foremost a research and development company, not a marketing or content company. 49 percent of employees work in R&D, compared to 29 percent in sales and marketing and just 7 percent in content production and customer service combined.

Yet, Spotify seems to continue chasing adjacent content and marketing initiatives beyond streaming, in search of ancillary revenue sources that rights holders do not completely control. The RapCaviar playlist brand will be expanding this year with 13 shows across the U.S. and more local curators on the ground globally, alongside increasing investments in original content across the board that will continue to drive up costs. The SEC filing also mentions Spotify’s recently-formed Creator Technology Research Lab, which focuses on “making tools to help artists in their creative process” (and is perhaps a component of the company’s expansion into hardware).

But if Spotify leans too heavily into top-down, exclusive content, it might lose ground ahead of rival services Apple Music and Tidal, which have arguably cornered the celebrity- and content-centric market but trail behind Spotify on algorithmic sophistication. Ironically, research has shown that tech IPOs tend to make rival firms within an industry even more rather than less homogenous, rendering it easier for these firms to steal each other’s customers; Spotify may do well to avoid this homogenization with competitors by keeping its tech savvy at the forefront.

4. An unsustainable licensing model

As efficient and prolific as Spotify can get on costs and customer acquisition and revenue generation, it still needs to hand over the majority of its revenue to rights holders. This is one reason why it is financially illogical for Spotify to become the “Netflix of music” in the short term: to an extent, the former has no control over its supply, and its marginal costs are completely subject to negotiations with major labels.

Even though Spotify has been actively negotiating lower royalty rates with the majors, its overall expenses for rights holders still grew by 27 percent year-over-year in 2017, according to the SEC filing. Moreover, catalog from the major labels and Merlin combined accounted for a staggering 87 percent of Spotify streams in 2017. Sony Music is also the top shareholder in Spotify at 5.7 percent of shares, behind founding CEO Daniel Ek (25.7 percent) and co-founder and board director Martin Lorentzon (13.2 percent).

While one potential remedy for this unfavorable licensing model is to develop ancillary revenue streams beyond recorded music, such as live events and creator tools, the only precedent for this approach on the public markets is Pandora — which tried to venture into live music with its acquisition of Ticketfly, but ultimately sold the latter to Eventbrite for $200 million.

Like Spotify, Pandora has yet to turn a profit — illuminating the fact that the two companies are the norm, not the exception, when it comes to multibillion-dollar global music streaming corporations struggling to make ends meet. In China, Tencent Music and Baidu’s Netflix-style video platform iQiyi are also planning IPOs later this year and tout hundreds of millions of active users each, but still suffer from much of the same issues and resort to the same band-aid coping strategies as Spotify, such as extensive marketing and heavy price discounting (both of which can take a toll on revenue growth).

“It’s a highly competitive sector, and the celebrity and content production fees continue to rise,” Shawn Yang, China-based executive director at Blue Lotus Capital Advisors, told Bloomberg. “Tencent’s management has said they don’t expect this sector to reach a break-even point in the short term, and we think that is true.”

“Going public will be the catalyst for Spotify to modify their business model,” says Davidson. “Once they’re reporting to investors on a quarterly basis, management will really need to figure out how to break out of the small margins they make after paying the labels. None of the streaming services have done this yet, but Spotify has some of the most creative management around and are probably in the best position to ‘Netflix-ize’ music and catalyze this deeper shift across the industry.”