Tuesday, 21 April 2015

Spotify is worth more than the entire US recording industry

"Sources: Spotify valuation ($8.4 billion) calculated by Wall Street Journal, based on an upcoming, $400 million+ capital round led by Goldman Sachs..  US-based recording valuation for 2014 ($6.972 billion) published this month by recording trade group RIAA."
From the comments:
"The valuation of a company is based on expected future profits. In the case of an established business, these are estimated on the basis of current profits adjusted upwards or downwards according to the market’s judgement of future trends, and discounted for time and risk (which means that possible earnings far in the future have little present value). Current earnings (profits) are usually only a small proportion (maybe 10%) of current revenue. So expected future earnings over, say, a 10 year period might well be of the same order of magnitude as current revenue.
In the case of a speculative start-up venture like Spotify, where there are no current profits, the valuation is little more than guesswork. A valuation of $8 billion implies that the market is expecting future profits of the order of $800 million a year over a substantial period in the future."
Also - note that it's comparing a global valuation to a US one.

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