Digital music provider Spotify and music subsidiary Tencent are thinking of swapping their stakes, ahead of their going public. Sources have indicated that the companies are planning to trade stakes of up to ten percent with each other.
Tencent will be paying in stock and cash for its stake, to cover the valuation difference between Tencent and Spotify. Tencent has been valued at $6 billion (2016) and its current valuation will be around $10 billion. Spotify was valued at $9.5 billion in 2015 and is expected to reach around $20 billion by the time it goes public.
With this trade, there is a possibility of a large payout for Spotify. This will also open avenues for the company in China, a market that has been a tough nut for western media service providers to crack. Spotify does not have any presence in China and has not attracted any Chinese investors.
However, Tencent’s music subsidiary has a considerable presence in China, where it operates multiple music services, covering a whopping 700 million active subscribers each month. However, it is anticipated that out of these 700 million users, only a small segment will be ready to pay for any music services.
2018 will see Spotify going public, with sources indicating that the plan is to go for a direct listing and not for an IPO. This will ease the task of going public, but they won’t be adding any new capital. Therefore, the financial influx form Tencent will definitely help Spotify. Tencent Music will go public towards the end of second quarter in 2018.