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Spotify’s Valuation Increases Despite a Threat from Apple

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Spotify is now valued at $8.53 billion

Many people would have thought that Spotify would be threatened by Apple’s (AAPL) music subscription service. Apple unveiled its music streaming and live Internet radio service during the recent Worldwide Developers Conference on June 8.

Ironically, around the same time, a Wall Street Journal report mentioned that Spotify closed a massive $526 million round of funding. This funding valued the company at $8.53 billion, which makes its valuation more than double Pandora’s (P) valuation. Pandora is the leader in the Internet radio space. It’s present only in the United States, Australia (EWA), and New Zealand.

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Spotify now has more than 20 million paid subscribers

Spotify, on the other hand, is present in 59 countries and is continually expanding. It recently entered Canada and plans to enter Japan (EWJ). Spotify also recently announced in a press release that it now has more than 20 million paid subscribers. This number doubled for Spotify in just one year, as the chart above shows. For paid users, Spotify’s music subscription service is priced at $10 per month. This is a competitive price, considering that Apple Music, Google (GOOG) Play Music, and Rdio all offer ad-free music streaming services for the same price.

Spotify has taken a few more initiatives to popularize its service. A few days back, it struck a deal with Starbucks (SBUX) in which Starbucks will promote Spotify in its stores. In return, Spotify subscribers can take advantage of Starbucks’s reward points program.

Spotify earns the bulk of its revenues from subscriptions and only a small amount from advertising. Investors prefer the subscription model to the advertising model because it offers more certainty about a company’s future revenues and profits. This is probably why investors are willing to put such a huge valuation on Spotify.

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