Spotify's First-Ever Guidance, Explained

Streaming music provider Spotify has released its first-ever guidance ahead of its highly anticipated April 3 initial public offering.

What Happened

Spotify expects to grow its total paid subscriber base from 71 million users in 2017 to as many as 96 million by the end of 2018, Recode said. This would represent a 36-percent increase, and revenue could rise 30 percent to $6.6 billion over the same time period, according to Spotify's guidance. 

The streaming music company expects its operating shortfalls to improve from a $500-million loss to a $409-million loss, with $50 million being tied to one-time IPO costs.  The company has never operated at a profit. 

Why It's Important

The "core to Spotify's pitch to investors" is an expectation for gross margins to rise from 21 percent to 25 percent over time, according to Recode. This would imply that, as the platform grows in size, it can improve its negotiating power with music labels and negotiate better terms.

What's Next

Sweden-based Spotify's stock will trade for the first time Tuesday on the New York Stock Exchange in a direct listing. The unusual strategy foregoes the traditional roadshow and share price discovery process. Spotify's stock has traded on private markets between $90 and $132.50 per share, which would value the company at $23.4 billion at the high end of the range, according to TechCrunch.

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