Spotify’s Market Cap Shows Just How Powerful Apple Really Is
Spotify’s direct listing on the New York Stock Exchange last week proved to be a little underwhelming in that most existing stockholders decided to hold on to their shares, a good sign for the company’s long-term future. Its stock price at the end of the week ended up at just shy of $148, which translated into a market cap of around $27 billion. This ends up at just around the cap of long-time business stalwarts Hewlett Packard and General Mills, but also relative newcomers like Sirius XM and Yum! Brands (owner of fast food restaurants like KFC, Pizza Hut, and Taco Bell).
Now let’s put Spotify’s market cap into perspective in terms of the music streaming industry. The company’s stock price is based mostly on the revenue that comes from its 80 million or so subscribers (plus some ad revenue from the free tier). Apple Music recently reported that it passed the 40 million subscriber mark. One could then extrapolate that Apple Music has a potential market cap of $13.5 billion should Apple ever decide to spin it off (probably zero chance of that).
But wait! Apple Inc. currently has a market cap of around $855 billion. That means that Apple Music is only around 1.5% of Apple’s total business!
That’s the dilemma that Spotify faces, regardless of how well its stock does. Between Apple, Amazon, and Google, it’s facing some seriously deep pockets where the music part of their business is a little more than a rounding error, but not by much.
Just looking at Apple for a second we can see that it doesn’t need to make money from music, which was once a loss-leader entry for its hardware sales. That could very well be the case again in the future, but that’s not the way music delivery works for Apple at the moment. Regardless, streaming music is not crucial to its overall business, and the same can be said for Amazon and Google, whereas music delivery is Spotify’s main focus.
The good point here is that’s the company’s center of attention, which may provide a better service to end users as a result, but it also means that it has to start making money from it for its shareholders, and now also has to play by the rules of the SEC. Corporate life today is indeed different than it was last month for Spotify.
Still, it’s a good sign that the current stockholders did not decide to dump Spotify stock in droves, as was anticipated. That signals confidence in the company and will keep the stock trading high. The streaming service is still the market leader and that position doesn’t look like it will change any time soon. That said, company execs would do well to keep looking over their shoulders because there are some giants coming up from behind that can take big steps quickly.
