Spotify stock has yet to begin trading, but a new move by Apple Inc. is already a major threat to a Spotify IPO...
Spotify is the world's most popular subscription streaming service. It has more than 60 million active users. More than 15 million of those pay a monthly $10 subscription.
We're still awaiting details about the Spotify IPO date, but many speculate the deal could take place in late 2015. Spotify has already raised $105 million in equity funding and is valued at $8.0 billion. That makes it the 13th highest-valued startup in the world.
But today (Monday), Apple (Nasdaq: AAPL) launched a paid music-streaming service at the Apple Worldwide Developers Conference (WWDC). The move is a direct attempt to compete with Spotify in the growing music-streaming market.
The move to streaming music marks a big shift for Apple. Apple's iTunes was transformative to the music industry when it launched in 2003. It made digital downloads the preferred medium.
But many of those users are switching to music-streaming sites...
According to the International Federation of the Phonographic Industry, more than 41 million people globally pay for a music subscription. Worldwide revenue from these services grew 39% to $1.8 billion in 2014. At the same time, download sales fell 8% to $3.6 billion.
"Streaming media is increasingly important to the computer-using experience, so it's important for Apple to have a role there," Apple's Creative Strategies Analyst Ben Bajarin told the Associated Press.
By the time Spotify stock comes to market, it will still be the leading music-streaming company in the industry. But the fact that Apple, the world's largest tech company, is moving into the market is troubling.
And that's not the only company Spotify will be competing against...
Spotify Stock Is Already in Trouble Pre-IPO
While Apple is just entering the market, another competitor of Spotify's is far more entrenched. Pandora Media Inc. (NYSE: P) reported 79.2 million active users at the end of Q1 2015. That was up 5.2% from the previous year.
While most of Pandora's subscribers are free listeners, the company did make $52 million from its subscription service in Q1. That was up 32% year over year.
And that's just one competitor. Google Inc. (Nasdaq: GOOG, GOOGL) has its own service in Google Play Music. Other services include Rhapsody, Deezer, Rdio, and the newest competitor, Tidal.
So far, Spotify has remained the top subscription service even with growing competition. But it's a whole new ball game now that Apple is entering the space.
Apple is a $736 billion company with more than $76 billion in operating cash flow. In fact, Money Morning experts see Apple becoming the world's first $1 trillion company.
[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]Plus, Apple's user base is enormous. In April 2014, CEO Tim Cook announced that iTunes had more than 800 million accounts. Getting just 2% of those accounts to sign up for a paid subscription would almost equal the number of paid subscriptions Spotify has.
And many of those users have Apple products like the iPhone or iPod.
"Once you start organizing your life around Apple products, you're less likely to ditch your iPhone and go over to Android," Forrester Research's Analyst Frank Gillett told the AP.
At Money Morning we always caution investors about jumping into a stock immediately following an IPO. These stocks are always extremely volatile, and retail investors typically pay a premium for IPO stocks after they have a first day run-up.
This is especially true for Spotify stock. Because it is such a highly valued tech firm, there is no telling how volatile it will be following the Spotify IPO. The competition it faces, including Apple's new service, only strengthens the argument against buying Spotify stock early.
The Bottom Line: Apple's new music-streaming service will be a major challenge for Spotify and Spotify stock. Apple is the largest and most influential tech company in the world. While Spotify is currently the global leader in music subscriptions, it wouldn't take much for Apple to overtake it. Avoid Spotify stock in its early trading, until the company proves it can withstand the competition and turn a profit.
Follow me on Twitter @KyleAndersonMM.
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Related Articles:
- Associated Press: Apple Wants a Lead Role in Streaming Music