Beats Music math: What Spotify and Pandora would be worth

flying moneyApple acquired Beats Music on May 28, and the valuation has inspired investor interest in other potential “liquidity events” in the streaming music industry. One report claims that Spotify investors hope to sell the company for $10-billion. Spotify is a long-rumored IPO candidate, too. One investing site attributes Pandora recently rising stock price to investor perception that Pandora is now a takeover target.

Apple will pay $3-billion for all of Beats (the electronics and music-service divisions) when the deal closes later this year. Source reveal that the Beats Music portion of the merger is accounted at $500-million. As we noted, Beats Music had 250,000 subscribers at agreement time, making Apple’s cost-per-subscriber $2,000.

Of course, there are other aspects in Apple’s valuation of the deal, but it is tempting to apply that arithmetic to Spotify and Pandora. Yielding to temptation, we ran the numbers and hereby propose (not with an entirely straight face) these stratospheric prices.

File this under Friday Fun.


Spotify’s business model differs from that of Beats. Both services offer a subscription plan, but Spotify, unlike Beats, also provides ad-supported free listening. To compare apples to apples (sorry, Tim Cook) we must add up Spotify’s 10-million global paying subscribers against the 250,000 individuals in the Beats plan.

In that version of Beats Music math, Spotify is worth $20-billion.

Spotify also serves 40-million non-paying active users. The revenue generated by non-paying users is variable, depending on the number of ad impressions per individual. Costs vary too, across all users, so it is plausible for this capricious exercise to value non-paying active users with the same worth as paying subscribers.

In that accounting of Beats Music math, adding paying and non-paying active users, Spotify is worth an eye-popping $100-billion.


Like Spotify, Pandora serves paying and non-paying users. Pandora is decidedly in the advertising business, according to statements during quarterly earnings calls and investor conferences. Nevertheless, the Internet radio market-leader provides ad-free Pandora One to 2.5-million paying users.

Considering only Pandora’s paying users, in the context of Beats Music math, Pandora’s value comes to $5-billion. That roughly matches the company’s market capitalization on Wall Street. (The stock is rather volatile, and has reached toward $7-billion in the recent past.)

But Pandora has registered a huge cohort of 250-million people who have registered at the site. Seventy-seven million of them are active users who listen every month. Considering Pandora’s emphasis on advertising as its chief earnings vehicle, those users should be valued as highly as Beats Music subscribers.

Using Beats Music math, Pandora’s active-user base brings the company valuation to $154-billion.


That was fun.

Brad Hill

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