Unpacking music streaming economics through the lens of Deezer’s SPAC

In an expected move, European music streaming company Deezer announced plans yesterday to go public via a French SPAC.

The deal values the company at a pre-money equity valuation of €1.05 billion and at €1.08 billion in enterprise value terms. Notably, those prices are similar to those at which Deezer last raised known external capital, a €160 million round in 2018 at a valuation of €1.0 billion on a post-money basis.

Naturally, with Spotify battling Apple Music for global music streaming ascendancy, and rivals Amazon, YouTube, and others competing for market share, you might have forgotten about Deezer, especially if you are not located in Europe. Still, the deal is happening, and that means we’ve been given a sheaf of information about the company.

The Exchange procured the company’s release and investor presentation. Let’s parse the data and see what the economics of a smaller music streaming business look like today.

Inside the Deezer SPAC

Starting with some top-level numbers, Deezer had 9.6 million subscribers at the end of 2021, leading to it calling itself the “#2 independent music platform globally.” Fair enough; that’s more subscribers than I would have guessed. The company generated €400 million in 2021 revenue.

Here are the company’s core financials, via a release:

Image Credits: Deezer release

A few things jump out at once, including slow revenue growth in 2021 and negative historical growth in 2020. The company has also posted decreasing gross profit results — and falling gross margins — in recent years. Those declines are contrasted against rising sales and marketing costs, leaving the company with stiff — and growing — deficits.

Even if we allow Deezer to dramatically tweak its profit numbers through the adjusted EBITDA moniker — more here — the results are still a bit blah:

Image Credits: Deezer release

Looking ahead, Deezer said in a release that it has “the ambition to achieve €1 billion revenue by 2025.” Again, fair enough. So, really, how good of a shot does the company have at growing into those numbers in the timespan listed?

How will Deezer grow?

As with all SPAC decks, the Deezer presentation is a hoot. Observe the following slide excerpt: