Billboard

Spotify, Rumored to Buy SoundCloud, Probably Can’t Afford It Right Now

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SoundCloud, the Berlin-based streaming platform that has drawn over 175 million users worldwide, is reportedly in “advanced talks” around an acquisition by Spotify, the market leader in music streaming which recently announced it had drawn 40 million subscribers, according to the Financial Times‘ sources.

Spotify and SoundCloud refused to comment on the report. One well-placed source maintained to Billboard that the rumor was nothing more than that, and that it could perhaps be a solicitation tactic.

Whispers of SoundCloud’s acquisition have percolated for years. While 2014’s indication of a SoundCloud acquisition by Twitter eventually faded, the social media giant did invest $70 million into the music platform this past June, representing the largest chunk of a $100 million funding round. (This week, meanwhile, brought rumors of a Twitter acquisition, with Google and Disney leading that charge; consider it the circle of business life.)

An unnamed suitor was kicking SoundCloud’s tires more recently, as it sat on a $1 billion valuation — a price tag Spotify couldn’t really afford. (It’s also a valuation that some said was more an idea than a reality.) In January Spotify raised $1 billion in convertible debt, the terms of which all but require the company to issue an IPO within the next year, or suffer under the weight of unsustainable financial penalties. Its most recent financial filing, covering 2015, reported it as having €597.3 million in cash on hand. So, if it was working with the $700 million valuation that Twitter put on it, Spotify would have to spend 43 percent of its available funds to buy a company that, at least at first blush, seems a strange purchase. Spotfy will have plenty of cash after that initial offering, but until Daniel Ek rings that bell, his company may stay away from gigantic purchases like this.

Spotify and SoundCloud would, on the face of it, make both strange bedfellows and, possibly, a powerful pairing. The two platforms are very different, in significant ways — Spotify, with its simple interface and focus on relatively casual listeners, and SoundCloud, with a elegant-but-dense set of features and a (truly) labyrinthine catalog of music, heavy on dance, uploaded by its creators. However, combining the two could carve a large, or larger, crater into the world of digital listening.

Read more: Billboard

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