Yes, Google is kicking the tires on Spotify. But they’re outright ‘laughing’ at a price tag of $10 billion, which is what both investors and major labels are hoping to draw. “[Google might] buy it for a few billion, max.,” a source close to the on-again, off-again discussions told Digital Music News this morning.
“But they’re laughing at $10 billion, or even half that.”
June 11th, 2014: “The Major Labels Are Trying to Sell Spotify for $10 Billion, Sources Say“
Part of the reason why Google has the upper hand is that there are only a few companies that can actually purchase Spotify, and Apple is already spoken for. This is a problem that’s been brewing for a while: just last month, noted investor Fred Wilson pointed to serious problems ahead for over-valued companies like Spotify, especially in the absence of more subscribers and solid revenues (not to mention profits). “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson flatly stated.
“So the moral of this story is that you can push valuations when you have investors knocking down your door, but unless you are cash flow positive and expect to remain so for the foreseeable future, you do that at your own risk.”
May 15, 2014: “Spotify’s Wall Street Window May Have Disappeared…“ Enter the Wall Street Journal, which seems to have been punk’d by Google executives earlier this week. A Journal article this week on the potential sale confirmed earlier sources to Digital Music News that Spotify was seeking $10 billion. But Google executives made sure that the Journal published their disinterest and effectively slashed the pricetag through the media. “Talks broke down for a number of reasons, including the high price Spotify was asking, as well as Google Chief Executive Larry Page’s lack of enthusiasm for subscription entertainment services,” the Journal parroted. And the result? According to the first source, that leak was done strategically to send a message to other potential bidders and puncture Spotify’s inflated delusions. “Just like you have Apple and Google colluding on employee salaries, you also now have them working hand-in-hand to avoid those unnecessary bidding battles,” the source continued.
“Beats was $3 billion, and [Apple] only paid $500 million in cash on that. So let’s stick with that price range, is the feeling.”
The big question is what impatient Spotify investors like Goldman Sachs and Norwest Venture Partners will do next. According to earlier sources to Digital Music News, Spotify investors are becoming increasingly agitated for a liquidation event, including a Wall Street initial public offering (IPO) or sale to someone like Google. “Whatever [CEO] Daniel Ek says is bulls–t,” a source remarked, referring by recent denials of any upcoming IPO plans. “[Spotify] is going public whether Ek likes it or not.” Meanwhile, Google (and potentially others) have time on their side. “If the IPO doesn’t fly, they’re f–ked,” the source continued, while pointing to serious desperation ahead.
“[Google] can wait this one out while Spotify starves. The price will just go lower and lower.”
Image: ‘Laughing Dog‘ by Rachael@flickr; licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).