Blog Post

A Digital Music Bubble In Swedish Water?

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

What’s in the water in Scandinavia?

Just four months ago, Spotify was supposedly valued at $1 billion (€705 million), according to reports of its latest apparent VC funding.

Today, the Dagens Industri business paper in Spotify’s native Stockholm reckons that’s more like 15 billion Swedish crowns (€1.6 billion). Its logic – this week’s floatation of music peer Pandora (NYSE: P), which took it up to a $2.6 billion (€1.8 billion) public valuation.

The ArcticStartup blog, which covers companies in Sweden and the rest of Scandinavia, thinks that’s way under-par. “Looking at the current revenues of Spotify and comparing those to Pandora, Spotify in my opinion would easily be valued closer to €10 billion in an IPO situation just based on its earnings,” writes its Antti Vilppone.

“Being able to generate €200 million in revenues, if that figure indeed is true, in a few countries in Europe tells something about the potential. Add the U.S. market to that and revenues could easily triple.”

Message to Scandinavia – whilst Pandora is a decade-old company with a track record, Spotify is a startup still trying to manage significant royalty outgoings.

All the same, does Pandora’s IPO, as suggested, set a new valuation benchmark for Spotify?

Pandora made $137.8 million revenue (€97 million) in 2011. We can estimate Spotify’s one million paying customers give it about €100 million ($142 million) in annual revenue. So, on earnings, both companies are indeed on par in their respective markets.

Now, Spotify’s imminent launch in the U.S. – expected in the next couple of months – is likely to bring it sufficiently bigger scale at which to balance and boost its business.