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Could Spotify Challenge Pandora with Its New Debt Financing?

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Spotify’s new debt financing

On March 29, 2016, the Wall Street Journal reported that Spotify had received financing of “$1 billion in convertible debt” from investors, including “TPG, hedge fund Dragoneer Investment Group and clients of Goldman Sachs Group.”

According to the report, Spotify had a valuation of $8.5 billion in June 2015. The report stated that Spotify is gearing up for an IPO in the next two years.

Also, the report mentioned that if Spotify goes public in the next year, TPG and Dragoneer could convert their debt to equity at a discount of 20% to the company’s share price at the time of going public. TPG and Dragoneer have bought $750 million “worth of the deal” with the remaining $250 million bought by clients of the Goldman Sachs (GS) Group.

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About Spotify

Spotify is the largest player in the paid music streaming industry, with 30 million paid subscribers. Although Spotify is the leader in this market, Apple (AAPL) has started to become a big threat to Spotify. In just six months since the launch of Apple Music, the company has acquired 10 million paid subscribers for its music streaming service. It took Spotify six years to hit the 10 million mark!

Alphabet’s (GOOG) YouTube also launched a free YouTube Music app in November last year that’s available with a YouTube Red subscription.

Pandora Media (P) had an active listener base of 81.1 million in 4Q15, down by about 0.4 million from the same quarter last year.

Apple makes up 12.1% of the PowerShares QQQ Trust Series 1 ETF (QQQ). If you’re interested in exposure to the television and radio sector, note that QQQ has 4.8% exposure to the sector. QQQ also invests 5.3% of its portfolio in Facebook (FB).

Now let’s look at how music streaming services are driving revenue growth for the recording industry in the next part of this series.

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