Thursday’s Themes . . .

September 28, 2017Uncategorizedgmtartaglia@aol.com

SPOTIFY’S PRIVATE VALUATION IS UP . . . AGAIN: No, that’s not a typo. Yesterday news broke that some pre-IPO private trading of Spotify’s equity was valued in the $16B range, which is up $3B from just a few months ago. RAIN has the details in the attached link. As you let that number sink in let me give you two opposing thoughts. First of all this seems crazy, right? How could a company which loses $600M annually and isn’t expected to raise any new capital because of a direct listing IPO stay afloat? What about the outstanding royalty lawsuits which are currently in the nine-figures? And how can the market justify Spotify’s market cap at 8x Pandora’s current $2B valuation? But on the other hand, if Spotify is valued anywhere near $16B wouldn’t that be a huge benefit to the entire streaming sector? We all know audio streaming is a grinder of a business thanks to the high royalty payments made to artists and songwriters. Because of this streamers’ margins are breakeven (at best), which keeps stock prices low, and inhibits the ability to raise new capital. But suddenly if the market does value Spotify at $16B that could buoy the entire sector and create more working capital. I don’t think anyone truly knows Spotify’s real value. But if you subscribe to the Wall Street adage of “buy low, sell high”, then buying in at a $16B valuation might not be the best deal you could make.

COULD VERIZON CHALLENGE THE DUOPOLY?: Over the past year I’ve written dozens of blog posts on the unhealthy state of digital media, which is currently dominated by the Goo-FBoo duopoly. Everyone from me to Sir Martin Sorrell thinks a more competitive playing field will benefit the entire industry. And recently the most common guess for a third horse entering the race has been Amazon, with its vast user base and rapidly developing media business. But what if the third horseman wasn’t Amazon, and instead was a Telco like Verizon? In the attached AdExchanger link their guest author puts forth the theory about how a Telco could become a formidable digital media competitor. The key to the entire argument is the Telcos start with the one thing everyone wants – mobile device IDs connected to specific users and their billing data. Even with that treasure trove of data the Telcos’ challenge becomes how to serve digital ads, since their typical customer isn’t exactly spending a ton of time on home sites like Verizon.com. That’s where Verizon’s strategy to acquire Yahoo and AOL, and combine them into one platform called Oath, makes things interesting. If Verizon can successfully integrate its cellular customers’ data with time spent on its publisher sites they would have a powerful DMP with end to end data and a way to site-serve ads. Not sure if they’ll be able to run this play successfully and actually go toe-to-toe with Goo-FBoo, but it’s an interesting idea to ponder.

WHAT YOU DON’T KNOW COULD KILL YOU: Quick, can you name companies behind the two logos in the image below? Would it surprise you to know that these are from two of the largest tech companies in the world – Tencent on left and Alibaba on the right. Both companies dominate Chinese/SE Asian Social, Data Aggregation and eCommerce the way Facebook and Google do in the Western World. Yet we don’t seem to pay much attention, or even know much about them, relative to the competitors in our own fishbowl. But that needs to change, according to Sir Martin Sorrell in the attached Digiday link. Tencent’s messenger app WeChat has 940M MAUs – only slightly behind Facebook. And Alibiba’s annual Boxing Day one-day online sale does several times more revenue than Amazon Prime Day. Experts predict that it’s only a “when” not “if” these Asian tech titans turn their attention outward towards Western markets. For consumers this could be good because more tech equals more choice. But the US Digital Mediascape could be in for a major disruption of any of these guys gain traction over here.