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Spotify Stays Ahead of Apple, but Profits Remain Elusive

As Spotify pitches its coming public listing to investors, there are signs the music streaming service is holding its own against Apple Music. But Spotify still is wrestling with how to improve its weak margins and work toward profitability.

Apple Music’s sales growth is decelerating in the U.S., according to a sales analytics firm. Although Apple remains a fierce rival, investors and industry experts don’t believe it will cut significantly into Spotify’s growth, because of the broader shift of music sales to streaming.

The company has allowed between $1.2 billion and $1.6 billion in private trades since January 2017, according to its public filing, of shares equivalent to 9% of the company’s outstanding share count. That doesn’t include an additional 7.5% of outstanding shares acquired by Chinese investor Tencent as part of a stock swap and secondary transaction. Private trading has resulted in less dilution for public investors from employee stock awards than is typical for a tech firm going public. Outstanding stock options, restricted stock units and warrants granted to employees make up only 11% of Spotify’s fully diluted shares, compared with 19% for Snap and 26% for Square at the time they went public. One reason why is that millions of options have already been exercised, likely by Spotify employees who were able to cash out some holdings.

Delano Samuels commented on this article.
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Hanging over Spotify’s approaching public listing are low gross margins.