![A5A2F05E-B64D-4D0C-8F5D-4EE9369F86EF.jpeg](https://res.cloudinary.com/hpiynhbhq/image/upload/v1519939088/nykuz0lgwmvrflhzrazz.jpg)

Spotify filed a Form F-1 Registration Statement with the SEC yesterday in order to go public.  Here is the filing:

https://www.sec.gov/Archives/edgar/data/1639920/000119312518063434/d494294df1.htm#rom494294_24

I love Spotify and use it all the time… what a great app!  The ability to listen to music you did not have to buy is something I consider a great luxury.  Times have certainly changed, and I feel Spotify was a great way to slow down the prevalent piracy in the music industry and find a decent way to reward artists – really a win, win for everyone as I see it.

Despite my love for the app, I am staying away from the company as an investment based on my review of the financial information contained in the Form F-1 prospectus.  Spotify’s revenues have been increasing by about $1 billion each of the last couple of years, but their losses keep getting bigger and their gross profit margin on their sales is razor thin.  Revenues were $1.9B, $3.0B, and $4.1B for 2015, 2016, and 2017, respectively, but their losses were $230M, $539M and $1.2B, respectively.   I am an old school investor, and feel companies should be making profits for their investors and that is how a company should be valued, as opposed to trying to determine a company’s value on gross sales growth with continued losses – any slowdown or missed growth targets will tank the investment as there is little substance behind the valuation.

These IPOs for companies that have never turned a profit are a way for the existing owners and private equity investors to cash out of their positions, as there is finally a market for their shares.  I am staying away, but of course, do your own due diligence and make your own investment decisions! 

Should Uber or Lyft go public, I will stay away from those as well as it is a similar situation with growing revenues but big losses and a business model that seems like it will never be profitable.


Good luck,

Brian