Spotify says path to profits clear ahead of stock market listing

LONDON/SAN FRANCISCO (Reuters) - Streaming music leader Spotify said on Thursday it has a clear path to profit as it prepared to spell out to investors the company’s growth plans and how it aims to fend off major rivals ahead of a stock market listing.

“Operating losses have grown with revenue, but the trend towards profitability is clear when you look at operating losses as a percentage of revenue,” the company said in an investor presentation published ahead of the event in New York on Thursday.

Revenue grew 39 percent to 4.09 billion euros ($5.04 billion) in 2017 from 2.95 billion euros in 2016, it said in a securities filing. At the same time, net financing costs of 855 million euros pushed up operating losses to 378 million euros from 349 million euros.

The direct listing will allow the Stockholm-based company to begin life as a debt-free public company, enabling it to complete a series of transactions agreed in December with late-stage investors that converts their debt holdings into equity, freeing it of heavy financing costs that drove up 2017 losses.

Executives of the 12-year-old subscription music phenomenon are seeking to convince Wall Street that the resilience of its business can offset the likely initial market volatility from allowing existing investors and employees to sell stock directly to the public without traditional underwriters or market makers.

The company, which is slated to begin trading on the New York Stock Exchange in early April, is holding a public webcast on Thursday instead of a closed-door “road show” typically used to woo institutional investors in initial public offerings (IPOs).

It has warned investors it faces a variety of risks.

Spotify says the royalty costs it pays to artists and publishers are so difficult to calculate that in the past it has been unsure how much it owed, prompting what are known as “material weaknesses in internal controls” for each of the past three years with the danger of more in the future.

In addition, its music services are primarily delivered over devices such as Apple’s iPhone or Amazon.com’s Echo series of speakers, and those big players could boot Spotify or emphasize their own services over Spotify’s.