Venture

Spotify Ties Up With Tencent Ahead Of Expected 2018 IPO

Morning Report: As expected, Spotify and Tencent have exchanged stakes in each others’ respective music businesses. Spotify needed the leg up.

Spotify, the popular music streaming business, has linked arms with Tencent’s Tencent Music Entertainment, exchanging a stake of itself for a piece of the latter streaming business. The deal comes amidst a myriad of stories indicating that Spotify will go public next year, perhaps in a so-called direct listing.

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(For more on why Spotify needs to go public as quickly as it can, head here.)

But the deal has more to it than establishing a partnership between two companies. There’s cash at play, something that is important to the unprofitable Spotify. Here’s Music Business Worldwide (MBW) with the pertinent riff:

The equity arrangement is believed to result in Tencent Music Entertainment Group and Spotify both acquiring 10% in each other’s companies.

It’s understood that Tencent Music will pass Spotify a chunk of cash to account for the different valuations of their businesses.

The same article reports that the Tencent music business is worth $10 billion and Spotify $15 billion. The latter valuation is far higher than what we have listed on our Unicorn Leaderboard. The MBW-sourced figure leans on “recent private trades.”

Taking the $15 billion as fact for now, if the firms swapped stakes with Tencent Music Entertainment making up the delta with cash, the currency component could be worth $500 million. That’s real money, and its cash Spotify likely needs.

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