Thursday’s Themes . . .

January 4, 2018Uncategorizedgmtartaglia@aol.com

SIGNS OF A SPOTIFY IPO: Spotify was in the news on two fronts yesterday. First word broke that the streamer started the filing process with the FCC for an IPO which could happen by late Q1. It still appears they’ll try to execute the largest ever “direct listing”, which means existing investors will sell their pre-public equity – but that won’t raise any new capital for Spotify. This is so unusual that no modern tech company has ever direct listed. Assuming this goes through the market will finally get a look under the hood at Spotify’s financials, including their cash burn rate (estimated between $300-400M annually), and the percent of listeners who are subscribers compared to addressable ad-supported listeners. This will also give the Street a chance to price Spotify’s valuation correctly. Recent private pre-IPO trade deals have been pegged as high as $19B (which seems crazy high). I guess we’ll all know their true market cap soon enough. RAIN has the details in the attached link.

AND ANOTHER LAWSUIT: Staying on Spotify for the second story – RAIN is also reporting a new $1.6B lawsuit filed against Spotify by a publishing group called Wixen. According to the attached link, Wixen’s lawsuit alleges that Spotify used a third party called the Harry Fox Agency for publishing rights to Wixens’ artists’ music, but that Harry Fox didn’t have the legal authority to offer those rights. While it’s highly unlikely that Spotify will have to cough up $1.6B in this case it’s another example of the downside of Spotify playing fast and loose with the content it uses, and the resulting consequences. It’s also possible that this lawsuit, and the handful of other unresolved suits, are the reason they’re considering a direct list IPO. Because many institutional investors would be squeamish about having a stake in a business with mounting legal exposure.

BEATING YOUR RISK BIAS: If you’re a regular reader of the DG you know Elon Musk is one of my business idols. I love the guy because he’s one of the few dreamers who’s audacious enough to turn big ideas into reality. This begs the question how does he do it? The answer, it turns out, isn’t what Mr. Musk does, but what the rest of us don’t do. The attached Inc.com link describes a 2012 Wired interview with Elon Musk in which he explained the motivation to launch (literally) Space-X. According to Musk most of us have a “tremendous bias against taking risks”, and instead default to “optimizing our ass covering”. In the aerospace industry the default mode was to build upon the rocket systems that were designed in the 50s and 60s. Can you imagine how outdated that tech must have been by 2010? But nobody was willing to stick their necks out to scrap the rockets of yesteryear and start over with a new approach . . . until Elon Musk. So Space-X went about breaking every space rule in the books. They bought used rockets from the Soviet Union to keeps costs down, they recycled parts on flight after flight until they had a reliable space transport, and they floated launch/landing pads in the ocean to have moveable touch down sites. Fast forward just six years and you have a proven space company who’s more nimble and cost efficient than the rest of the industry, and will eventually beat out NASA as the first to send a human to Mars. Pretty impressive stuff for a guy who was just trying to defy his bias against risk!