In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross answer Swedish listener Johann's question about what Spotify is doing when it goes public. The music streamer will undergo a direct public offering, which, among other things, takes the Wall Street underwriter out of the mix. The guys explain the differences and why Spotify is doing it this way. They also talk about the soon-to-come IPO of iQiyi.

A full transcript follows the video.

This video was recorded on March 2, 2017.

Chris Hill: From Johan Ericsson in Sweden, he writes, "Our Viking country is known for Ikea and Volvo, but also Spotify, which is going public this year on the New York Stock Exchange. Spotify announced they will do a DPO, not an IPO. Could you explain what that really is, and why are they doing it?" Jason, what is a DPO?

Jason Moser: Basically, in simplest terms, this is where they bypass the underwriters of an IPO to basically help go about setting a demand and a price on the stock. They're not issuing new shares to raise money for the company. They're giving people an opportunity to buy shares of the company as it exists today. It creates, perhaps, some optics that maybe could be perceived as being a little bit more shareholder-friendly, I guess.

I still think the nature of this business is such that you really need to take a long, hard look at it before you consider investing in it. The economics of music are so brutal. We look toward companies like Google and Amazon that have done so well in making music an ancillary offering, Apple too. But, when you're on your own doing it, I mean, look at Pandora. Those are probably the worst financials in the history of publicly traded companies. And that's a company that's been public for close to six or seven years now, they just can't get profitable because those economics are so difficult. So, Spotify, big user base. I don't know that's going to be enough, though.

Hill: An IPO that maybe we have some more optimism around, Matty, I think you mentioned this on a recent show, iQiyi, which is the video streaming service attached Baidu, which is the Google of China. They're getting ready to go public maybe later this spring.

Matt Argersinger: Yes, very soon. They just filed with the SEC, their F-1, which is the most formal part about filing to go public. This is a really exciting deal. They're going to raise about $1.5 billion. They're going to use most or half of that to acquire new content. They already have a licensing deal with Netflix, which is getting a lot of shows, but this is really going to up their game in terms of content.

But the details behind this are pretty exciting. You have a service with 421 million monthly active users, 126 million daily active users -- who by the way, spend almost two hours on average per day watching shows or movies on iQiyi. The most exciting part might be the 50 million paid subscribers, though. iQiyi is kind of a YouTube-Netflix hybrid. It has free users who see shows and see advertising. Then it has paid subscribers, very much like Netflix. 50 million paid subscribers by the end of 2017. That's up from just 10 million at the end of 2015. So, tremendous growth there. Membership revenue was up 74% to over $1 billion in 2017. That makes up about 38% of iQiyi's revenue.

If you compare iQiyi to Netflix, iQiyi has 50 million subscribers, Netflix, as of the end of the year, has about 120 million subscribers. So, about 2.4X iQiyi's numbers. But post-IPO valuation estimate for iQiyi is only $17 billion. Which looks high to me, but then you compare it to Netflix's market cap of $126 billion, which is 7X iQiyi's, and you can see why I'm pretty intrigued by iQiyi. Ticker IQ when it comes out, by the way.

Ron Gross: I'd like to make one general statement on IPOs, if I may. Give me a second for me to get on my soapbox. As an investor, there's only one reason you should ever want to see a company go public, and that is because they need to access the public capital markets to raise cash to grow. If it's because their founders or their venture capitalists want an exit strategy, run for the hills.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.