How ready is streaming-music service Spotify for an initial public offering? Well, it’s already conducting practice earnings calls.
The privately-held company held one such call to discuss quarterly results as recently as the first week of May with some investors as well as members of the group of bankers—a group that includes Morgan Stanley, Goldman Sachs, and Deutsche Bank —that extended a recent $200 million line of credit, sources tell Quartz.
The so-called “earnings call” was characterized as a “dry run,” or prelude to the sort of post-earnings conference calls public companies regularly use to address additional questions from analysts, the sources said.
Facing investor scrutiny regarding its finances and management is typically one of the toughest challenges that a private company faces in the run-up to an IPO and beyond. The practice earnings calls are one way in which startup founders, investors, and their bankers are trying to reduce any costly misfires from executives unused to such scrutiny. Although the specifics discussed on the Spotify call aren’t clear, the mock earnings report offered bankers a chance to ask detailed questions about the company’s financings or otherwise attempt to “poke holes” in some areas like growth projections, one source explained.
Privately held cloud-storage company Box reportedly has held similar practice earnings calls. And in the year before Facebook’s offering, the social networking giant wrote dummy scripts for quarterly earnings calls, according to the Wall Street Journal. The fact that Spotify is hosting such a call offers one of the clearest signals yet that the music startup is tuning up for a potential IPO, sources said. Spotify declined to comment.
Spotify has already sent other signals that an offering is in the cards. For example, the $200 million credit facility is typically seen as the type of financing that precedes a debut on the public markets. The company has also conducted a search for an employee to prepare financial reports in compliance with US securities regulators, according to Reuters. It also acquired Echo Nest, the company behind the algorithms it uses to power its personalized radio service.
Quartz has already reported that Spotify has been mulling a public offering as early as this fall. A Spotify IPO would be one of the most highly anticipated public offerings of the current round of tech startups.
Spotify hasn’t ever said publicly that it intends to go public, and an offering is not a certainty. The tech terrain has shifted somewhat as Spotify has been mulling its options. For one thing, the tech IPO market took a bit of tumble earlier this year. And the recent acquisition of Beats by Apple (in part for Beats’s nascent streaming service) for $3 billion shook up the streaming music world and caused Spotify to rethink its own plans, sources say.
With the smaller and less-established Beats fetching $3 billion, people have speculated that Spotify could fetch as much as $1o billion in a sale of the company. Identifying an ideal acquirer, however, may not be as easy for Spotify as just taking itself public.
At this point, Spotify would seem to be preparing itself for an IPO. But the company is still weighing all of its options, said a source familiar with the company’s thinking.