Spotify could hit $100 billion valuation

Spotify could be valued at $20 billion when it goes public and eventually be worth $100 billion, according to GP Bullhound, which is an investor in Spotify, laid out a thesis on Monday that could see Spotify’s valuation rise to $55 billion by 2020, before reaching the $100 billion mark, which would make it one of the most valuable stocks in the world.

A number of reasons could be behind the valuation from faster-than-expected subscriber growth to increased penetration in the emerging markets and better deals with music labels, GP Bullhound said in a report.

Spotify announced in July that it had hit 60 million paying users. GP Bullhound sees this hitting 100 million by mid-2018, quicker than it had originally thought. And by 2020, the user base could hit 500 million, with 200 million users being premium subscribers.

This will be achieved by penetrating new markets, but along with that will come fewer paying subscribers as a percentage of total users, and perhaps lower average revenue per customer, due to a dilution effect of cheaper subscription plans.

“Spotify have introduced family plans and student discounts and if we factor in that emerging markets have a much lower average revenue per premium subscriber we believe that Spotify will see a steady decline in revenue per premium subscriber moving towards 2020 compared to today’s value,” GP Bullhound said in its report.

“This is the reason why we have decreased our estimated average revenue per premium subscriber to $80 — compared to $88 in 2015 and $89 in 2016.”
But the investment bank said that advertising could lead to a higher revenue per non-premium subscriber than previously anticipated.

GP Bullhound’s forecast of a valuation for Spotify of $20 billion after its initial public offering (IPO), is based on it having 70 million premium subscribers and 100 million non-premium users. Given that this will likely be reached in the next few months, the investment bank said its valuation thesis is “conservative”. Eventually, the Swedish company could hit a $100 billion valuation.

“Given that Spotify’s growth continues and that emerging market growth keeps average revenue per premium subscriber relatively in shape we envision that Spotify has a long term potential of being valued at $100 billion,” GP Bullhound said.

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