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TheStreet Open House

Spotify IPO Is a Dog and Pony Show

NEW YORK (TheStreet) -- In December, prior to "official" knowledge that Spotify would go public (as if what we have now is "official" and as if we needed confirmation of the obvious), I published Spotify Is Overvalued, But That Really Doesn't Matter.

In that article I stated:

Technology Crossover Ventures (TCV) bankrolled Spotify's recent round of funding, taking it to a multi-billion dollar valuation. TCV has also been a big Netflix (NFLX - Get Report) investor. The firm remains a major investor. And TCV is damn good at what it does. Damn good.
(Disclosure: TCV also has an equity stake in TheStreet (TST).
TCV is savvy. They have won big with Netflix. They will win big with Spotify. They wouldn't have it any other way.
Spotify can send its Chief Revenue Officer around the country all it wants. It can make mobile listening free in an effort to generate the scale necessary to sell meaningful amounts of advertising and compete with Pandora (P - Get Report). It can put its very likable and competent CEO Daniel Ek in front of the media to make Spotify's optimistic bull case.
It can do all of these things. And, while I'm not here to say the people on the ground, doing the work at Spotify don't believe in their mission, I am saying that, for better or worse, it amounts to noise between massive financial transactions.
The end game for Spotify is, ultimately, getting acquired.
It will either happen before an IPO or after an IPO, but, either way, sooner or later, it will happen. It has to happen because Spotify has about zero chance of achieving the health and stability Pandora's business currently enjoys. And Pandora still has a ways to go. TCV knows this. It has to.
When the next financial transaction occurs, TCV makes out nicely.

And the situation remains the same today as I described it in December.

Spotify needs massive amounts of cash to bankroll its operation. If you understand Pandora's business, you recognize it's in a much better position than Spotify.

I want Spotify to be successful. Ultimately I think it and/or several of its competitors will be. That's because the access model is the future in the music industry (as in, you access music via on-demand streaming services in lieu of a physical or download-based music collection). So, one way or another, streaming -- in several forms -- will win out.

However, that doesn't eliminate the present realities at Spotify.

Right now, these realities play out, in part, in financial transactions designed to, yes, provide working capital and a chance at survival, but also as a way for big investors to have the opportunity to cash in. I can't imagine everybody will just sit tight and hold their shares into an IPO. Profits will be banked. (It also doesn't hurt that all of this talk keeps Spotify in the news. Awareness. Free advertising.)

Then, when Spotify gets acquired (that's the likely endgame to each act of this dog and pony show), the rich really get richer. Somebody such as Google (GOOG) will swallow Spotify up into its massive multi-billion machinery. At that point, Spotify becomes a pimple on the behemoth's behind, to the extent that the billions and billions that were transacted prior become distant memories. They'll be represented by more Teslas on the road in Silicon Valley and beachfront property scooped up for millions in places like Malibu. 

--Written by Rocco Pendola in Santa Monica, Calif.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks. Rocco Pendola is a columnist for TheStreet. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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