Deezer hits the stock market seven years after original plan, valued at $1.1 billion
- July 6, 2022
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Music platform is worth about the same as in 2015 when it first planned an IPO
THE DeezerFrench music streaming platform and competitor to names like Spotify, Apple and Amazon, finally managed to be listed on the stock exchange this Tuesday and the shares began to be traded on Euronext Paris. The debut is a product of the incorporation by SPAC I2POwhich has among its founders the Pinault family, from Kering, holding of luxury brands such as Gucci and Balenciaga, businessman Matthieu Pigasse and Iris Knobloch, former director of WarnerMedia.
The company had already announced the transaction at the end of April, but was awaiting approval by shareholders on both sides – which happened at the end of last month. For the transaction, Deezer was valued at $1.1 billion. The minimum objective was to raise US$ 135 million, which was guaranteed at the start, by the company’s shareholders. Now, the company begins to build its history as a publicly traded company. A chapter that begins in 2022, but with a 2015 flavor.
The implied valuation is very similar to seven years ago, when Deezer first attempted an IPO. The difference is that, at the time, it planned to raise approximately US$ 345 million on the French stock exchange (2.5 times the amount obtained now). At that time, the company even said that there was “great demand from investors”, but withdrew shortly afterwards citing “adverse market conditions”. Didier Bench, chairman of the company, told the WSJ in 2015 that Deezer had withdrawn from going public especially because of what had happened to Pandora Media — whose shares lost 36% in value, at the time, following the loss of subscribers due to of increased competition. Since then, the competition has not cooled down. It just increased.
Proof of this can already be seen at the start of the company as a publicly traded company. On I2PO’s first day of trading with Deezer incorporated, the share price had just fallen by almost 25%. Yesterday, while it was just a SPAC, the vehicle ended the day with the share quoted at 8.50 euros, the same opening price this morning. Minutes ago, the screen price was 6.50 euros.
The new money, according to the company, will be used to fund future growth, which will prioritize music — contrary to what Spotify and Amazon have done, with podcasts and audiobooks as a central strategy, respectively — and B2B partnerships. the goal is reach the first billion sales in 2025 and become profitable in the same year. That is, doubling current revenue and finally taking the company out of the red. These are bold goals compared to what Deezer has presented in the last three years.
The prospectus showed that Deezer generated 400 million euros in revenue in 2021, a growth of 5.5% compared to the previous year, and its main markets are France (responsible for more than half of the revenue) and Brazil, which generated 28.1 million euros. It is important to note that revenue growth is not linear (there was a drop from 2019 to 2020) and, even with the small expansion in 2021, the company ended the year in the red, with a loss of 120.3 million euros, even higher than the negative 95.3 million euros recorded at the end of 2020.
By the end of 2021, Deezer had 9.6 million subscribers, according to a statement sent to investors in April this year. The total was enough for the company to be called “the number two independent music platform in the world” in the same statement, despite the great distance to the first place, Spotify. The company’s ‘strong’ is in France, where it has 30% of the share of downloads of apps of this type and, in second place, is Brazil, where it accounts for a market share of 17%. Still, the company has just 2% of the world market — far behind global leader Spotify, which has 31%.
The prospectus presents some data to try to encourage the investor in the midst of this scenario. One of the information in the document is that streaming has grown at a record pace in the music industry, with a CAGR of 28% between 2016 and 2020. And it is expected to continue to expand at a rate of 10% between 2020 and 2027.
It is the argument defended by the rival Spotify, at its Investor Day held in early June. The long-term potential of the sector, combined with the estimated margin gain over time, in general, caused Goldman Sachs to project an 18.8% increase in the share price of the global leader, establishing a price- target of $133, even with the recommendation remaining neutral. The bank also estimates a 12% compound annual growth between 2021 and 2030 for the music streaming apps market and reinforces that, according to analysis, the segment can be more resilient amid economic turmoil. Another data from the report is that the time spent listening to music has increased since 2018, from 17.8 hours per week to 18.4.
“We estimate that the music streaming share of users in developed markets will increase to 53% in 2030, up from 34% in 2021, and in emerging markets to 14%, up from 6% today,” the analysts say. The growth, if confirmed, could benefit Deezer, which has Brazil as one of its main target audiences.
By going public, Deezer wants to show that the streaming segment can become profitable, in addition to the market’s bad mood with technology companies. For now, again, the scenario is not the most comforting. O Spotify, the main rival, debuted on the North American stock market worth US$ 26.5 billion and is currently worth US$ 18.7 billion. Extending the gaze a little, the layoffs in Netflix and the weaker results presented by the company in the post-pandemic period also had their impact. In April, the company lost US$ 54 billion in market value and was valued at US$ 100 billion. Today, it is worth US$ 79.9 billion.
At the same time, it is not a completely sluggish market either. Last year, rapper Jay-Z sold the Tidal platform to the CEO of Twitter in a $297 million deal. The singer Beyoncé’s husband had bought the tool in 2015, for about 56 million dollars.
B2B in focus?
Today, of Deezer’s 9.6 million subscribers, 5.6 million come directly (or B2C) and another 3.9 million come indirectly (users who have access to Deezer when contracting a telecommunications service, for example ). The company’s idea, to reach the billion, is to take these amounts at a ratio of 50/50. To this end, new music-focused business verticals – not specified in the prospectus – and new B2B agreements are planned. Today, in Brazil, it is worth remembering, streaming operates in partnership with TIM. Outside the country, the company has agreements with Orange (French), and has recently established agreements with RTL Interactive, a leading media company in Germany.
To collaborate with this growth, I2PO highlights in the prospectus that it can collaborate with the contacts it has with companies in Deezer’s target countries, helping the company to gain territory there. Fulfilling this mission can be made easier with Iris Knoblochformer director of Warner Media, on the board of the combined company.
It is not yet known, of course, what effects the increase in these partnerships may bring. What Deezer wants to convey, for now, is that the listing on the Paris stock exchange could be the first step for the company to find the path to growth and, finally, to be able to take advantage of the potential that the music streaming market presents. The question of how the company will get there, at least for now, remains.