A Spotify investor who predicted its $20 billion valuation says everyone is wrongly focusing on its losses

A Spotify investor who predicted its $20 billion valuation says everyone is wrongly focusing on its losses

Daniel Ek

Kimberly White/Getty Images

Spotify CEO Daniel Ek

  • Spotify released its financial results Wednesday as part of the paperwork it filed to become a public company.
  • Those results show growing losses which seem to show how tough it is to make money in music streaming.
  • But GP Bullhound partner and Spotify investor Joakim Dal says investors shouldn't worry about the losses.
  • Instead he thinks the focus should be on why Spotify will be the next Netflix.

Spotify filed its financial results on Wednesday in preparation for its IPO, and revealed both massive revenue growth and spiralling losses.

The company posted €4.1 billion in revenue in 2017, but also a net loss of €324 million (£287 million, $394 million) for the year.

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In 2016, the company posted €2.95 billion (£2.6 billion, $3.4 billion) in revenue on a loss of €311 million (£275 million, $379 million). If you're a pessimist, this is indicative of a "black hole" in Spotify's finances, and one that raises questions about whether the firm can ever be profitable.

Certainly it's pretty tough to make money out of music streaming. Spotify said in its filing that it spent €8 billion (around £7 billion, $10 billion) on royalties and describes that as a significant cost.


The firm had to renegotiate all those expensive deals with music labels to manoeuvre into a strong enough financial position to go public.

A question is: how will Spotify ever negotiate those costs down and become profitable?

Joakim Dal, a partner at GP Bullhound who first began investing in Spotify in 2014, said Spotify is right not to worry about profitability and instead look at the opportunities.

Dal has a close understanding of Spotify's business. GP Bullhound was pretty close to the mark in October when it valued Spotify at $20 billion (£14.5 billion) for its public listing. According to a February share sale, it's valued at around $19.7 billion (£14.3 billion).

Dal thinks Spotify has always been "misunderstood."


"People are very focused on the fact they're making losses," he told Business Insider. "If I was in their shoes now, I would make the same decision to prioritise growth over financial profitability. The company is, on a per-subscriber basis, extremely profitable."

Dal pointed to Spotify's operating losses, which have stayed fairly constant while the firm's revenues have grown massively, as shown in this chart.

Spotify revenue losses chart

Business Insider

"Losses are not expanding as fast as revenues are growing," said Dal. "That's really important in the public market."

Spotify could be a $50 billion Netflix

Dal wouldn't say whether GP Bullhound might sell its holdings in Spotify, but added: "We think the company could be valued at $50 billion or more.


"We have always compared it to Netflix, which is valued at more than $100 billion. We think that's the most comparable company to Spotify ... and we think the [valuation] gap should be closed."

This is where Dal takes a glass-half-full approach. Where others focus on how Spotify should control its losses, Dal thinks the firm should just focus on turning every smartphone owner on the planet into a paying subscriber.

"They could focus on the landgrab opportunity that is out there," he said. "They have a bigger shot at changing how people listen to music just by focusing on people who are downloading illegally, or listening to CDs, and changing them to streaming."

According to BPI figures, there were 47 million albums sold on CD in the UK in 2016. That's a big drop from a peak of 163.4 million CDs in 2004, but it's still a lot of potential Spotify users.

"There's a big subscriber pool out there to grab," said Dal.