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Is Spotify Worth $5.2 Billion?

By Anders Bylund - Sep 13, 2013 at 9:52AM

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Digital music service Spotify is looking for another round of financing. This time, the terms would value Spotify at $5.2 billion. Is that number crazy or reasonable?

What's Spotify really worth?

Just 10 months ago, the digital music service landed a round of financing at a total valuation of $3 billion. Right now, Swedish newspaper Dagens Industri says that Spotify wants more money, with an implied valuation of $5.2 billion.

There's no question that digital music is a big deal right now. Goldman Sachs (GS 0.61%) pumped $50 million into Spotify last year and expects a decent return on that investment. Apple (NASDAQ: AAPL) dominates the pay-per-download music market with its iTunes service, but sees even more opportunity in the streaming segment. If nothing else, Apple's interest validates the market for specialists like Spotify. In some ways, the NPD Group says, the streaming market is already larger than the direct-download opportunity.

But Spotify's implied price tag is larger than Pandora Media's (P) $3.6 billion market cap. Pandora has more listeners than Spotify, and already makes a modest profit, while Spotify plans to burn cash over the next few years.

In the video below, Fool contributor Anders Bylund walks you through the digital music landscape. He'll also remind you that Spotify's $5.2 billion price tag is only of academic interest until Spotify goes public, unless you're an early investor like Goldman Sachs or Kleiner, Perkins, Caufield & Byers, of course.

Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+.

 The Motley Fool recommends Goldman Sachs and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
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P

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