Is Spotify REALLY Worth $4B Against Pandora and Sirius?

The world around venture capital sometimes creates some very interesting reading when you look at private company valuations versus public company valuations. In this case, it is in the online streaming music service of Spotify. It is hard to know what the valuation should be without having access to the books, but a $4 billion valuation should catch the eyes of Pandora Media Inc. (NYSE: P) and also of Sirius XM Satellite Holdings Inc. (NASDAQ: SIRI).

Reuters, the Wall Street Journal, and others have thrown some figures out showing that a $250 million capital raise gave Spotify a value of more than $4 billion. When currencies are translated, we have seen that Spotify generated revenue of close to $570 million in 2012 with what may be a loss of about $77 million. Spotify is also shown to have 24 million active users and 6 million who pay for a premium service. So how does this add in a relative value basis?

Pandora Media Inc. (NYSE: P) recently released its earnings and disclosed that it had 70.9 million active users and it said it is on track to generate roughly $660 million in revenue this year after having generated $427 million in 2012. Pandora just became profitable on normalized operations this year. Its market cap is $5.1 billion, but keep in mind that shares have tripled off their lows this year.

Sirius XM Holdings Inc. (NASDAQ: SIRI) is in a different class because it is almost all subscriber-generated. It is the big kahuna with a market cap of over $22 billion and its latest press release showed has that it has 25.6 million subscribers. Sirius is also profitable, and sales were $3.4 billion in 2012 and expected to be almost $3.8 billion in 2013.

Again, a problem in analyzing the current value is not knowing the current financial expectations of Spotify. That being said, Spotify is valued at close to $166 per active user versus close to $72 per active user of Pandora. We do not truly want to do the direct comparison for Sirius XM due to its subscriber only model, but that would be worth about $882 per subscriber in case you really had to know.

On Pandora, we would also point out that in the first nine months of 2013, some $85.2 million of the revenue came from subscribers versus its $463 million in total revenue. We do not have any comparable breakdowns for Spotify.

Here is where the rub comes in on valuing a company like Spotify at $4 billion. We cannot use a Sirius XM comparison as of now, but Pandora’s $5.1 billion is after its shares tripled this year. We will have to wait to see final sales and income numbers before making any final verdict here. Just keep in mind that for a venture-backer to pay a $4 billion valuation today it means they expect the value to be $5 billion, $6 billion, or far more when it comes time to sell or go public tomorrow.

Van Damme’s Volvo split gone viral

Movie star Jean-Claude Van Damme doing an improbable-looking split -- with each leg set on a truck that is driving backwards.

A cute kid in a Darth Vader outfit using "special powers" to unlock car doors.

A group of adorable babies dancing with adult versions of themselves.

These ads have millions of views on YouTube, tons of buzz on social media and have likely have been conversation topics at dinner tables, lunchrooms and cocktail parties.

But do these popular videos from Volvo, Evian and Volkswagen -- as well as ads gone viral from other brands -- actually help the company?

Absolutely, say marketing experts.

In the case of the new Van Damme ad, which has nearly 7.7 million YouTube views, the publicity will not only aid the overarching Volvo brand, but it could also sell more trucks, says Mediapost.com advertising columnist Barbara Lippert.

"This is completely unique. It's an incredible human way to show the equilibrium of the steering of the truck," she says, adding that "anyone who knows anyone who drives a truck or owns a truck will mention it to them. People love this stuff."

Reaching those current truck drivers and owners was a big part of the marketing strategy, says Volvo spokesman Anders Vilhelmsson.

In using social media rather than a traditional TV ad, Volvo also hoped to boost brand awareness with young people who could be "future truck drivers," he says.

Volvo scored big with this ad, but in reality, most marketers don't come close to garnering this type of digital attention.

"Everybody wants their ads to go viral," says Ted Marzilli, CEO of consumer perception research firm BrandIndex. "But if there was a playbook to do that, you would just follow the recipe and your ad would go viral."

And while garnering views - and positive reviews -- is admirable, it doesn't guarantee brand success. Sometimes, those who make it big have a big problem: folks remember the ad, but not the product it's touting.

"It only help! s the advertiser if people make the connection between the content and the brand," says Toby Southgate, CEO Americas at branding agency Brand Union.

Otherwise, the viewer may recall the actors, the music or the stunts in isolation, he says.

Another issue: consumers giving creative kudos to the wrong brand. For instance, folks often get messages from Visa and MasterCard mixed up, says Marzilli.

But for marketers who get it right -- and successfully link their brand to a much-viewed video -- the payoff can be immense.

"A viral ad can generate 30 million views," says Jonathan Symonds, executive vice president of marketing at advertising analytics firm Ace Metrix. The cost can stretch into the millions of dollars to buy that type of reach on TV, he says.

And many people are not only open to receiving buzzed-about videos from those who pass them on, but they also seek them out themselves.

"Consumers are choosing that content," he says.

As for the Volvo video, ad columnist Lippert sees only one potential downfall, "I can't see any negative at all except if it is proven to be fake," she says.

Volvo's spokesman Vilhelmsson says the action is indeed real.

"There was a safety line" attached to Van Damme that is not visible in the ad, he says, but the actor did do the split between the moving trucks.

"There were rehearsals for several days," he says. "But what you see in the film that is one take without any breaks."