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Business groups warn Congress of impact from US-China tariffs

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Technology, Media & Telecommunications

Spotify’s Direct Listing Gamble Pays Off


Business groups warn Congress of impact from US-China tariffs

Business groups told the House Ways and Means Committee on April 12 that proposed tariffs by the U.S. and China would cost U.S. producers billions of dollars, while one manufacturing group said tariffs on Chinese imports would help level the playing field for U.S. businesses.

During March and April, the U.S. and China have threatened to enact or have enacted tit-for-tat tariffs, targeting billions of dollars worth of products, sparking an outcry from several lawmakers and business leaders.

Officials told lawmakers at the hearing that the tariffs could adversely impact everything from soybean production to cherries and automobile parts.

Jon Heisdorffer, the president of the American Soybean Association, said in his testimony before the committee that his industry, which was targeted by Chinese tariffs, is already bracing for impact.

Should a proposed 25% tariff on U.S. exports of soybeans be approved by China, total U.S. exports of the crop could drop by 37%, and U.S. soybean production could fall by 15%, Heisdorffer said.

John Wolfe, CEO of the NW Seaport Alliance that represents the ports of Seattle and Tacoma as well as the Seattle-Tacoma International Airport, said about $8 billion in two-way trade will face increased costs, including cherries. Some $127 million worth of the fruit was shipped through those ports to China last year, he noted.

"If the Chinese market is closed to exports, they’re going to have a very tough time finding alternative markets," Newport told the committee.

The concern over the tariffs has also been raised by lawmakers, some of whom are in Trump's own party.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, who has solidly been a pro-trade advocate in Congress, said that any action against China "must avoid consequences that hurt Americans."

"We know that tariffs are also taxes and will ultimately be passed on to the consumer," Brady said.

While the tariffs have been met by mounting opposition across many industry groups, not all groups are opposed.

Scott Paul, the president of the Alliance for American Manufacturing, called the threat of tariffs a "necessary step" to achieve progress in reducing market-distorting behavior. Withdrawing the threat of tariffs would be tantamount to waving the white flag, signaling to China that there would be no consequences to what he called its "predatory" trade behaviors, Paul said.

"We would be abandoning the best leverage we've seen in years," he added.

The scope of the tariffs is broad.

President Donald Trump first stepped up pressure on China when he imposed a 25% tariff on global steel imports and a 10% tariff on aluminum imports following a Section 232 investigation, which took effect March 23. While some countries, such as Canada and Mexico, were given temporary exemptions, China received no exemption.

China, in response to the steel and aluminum tariffs, on April 2 implemented tariffs of 15% on 120 U.S. products, including certain fruits as well as a 25% tariff on U.S. pork.

The Trump administration then announced that it would impose an additional 25% tariff on $50 billion in Chinese imports, including televisions, motor vehicles and other technology products, stemming from a separate Section 301 investigation into China's forced technology transfer.

In response, China said it would impose a reciprocal set of 25% in additional tariffs on 106 U.S. imports, valued at $50 billion.

Following China's threat, Trump on April 5 instructed the Office of the U.S. Trade Representative to consider additional tariffs on $100 billion of Chinese imports, though the office has not yet specified which products could be targeted.

The Trump administration has said the tariffs, particularly those to be imposed on Chinese products, are a necessary measure to reduce the United States' $375.2 billion trade deficit with China by $100 billion.

Ahead of the hearing, more than 100 business, technology and farm groups sent a letter to the committee, saying the tariffs "create unpredictability across the business and farm community here in the United States, depress commodity prices, and have already harmed U.S. companies, farmers, consumers and markets."

Treasury Secretary Steven Mnuchin has said he is "cautiously hopeful" that a deal between the two countries can be reached before U.S. tariffs on Chinese imports are implemented.


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Technology, Media & Telecommunications
Spotify’s Direct Listing Gamble Pays Off

Highlights

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion.

Apr. 06 2018 — The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion. That compares to a trading multiple of just 1.0x revenue for Pandora as of the same date, but Spotify’s higher trading multiple is justified by its higher proportion of paying subscribers among its listeners and its growth outside the U.S.

Spotify Technology is the parent of Spotify AB, the Swedish operator of the popular Spotify streaming service.

Company guidance for full year 2018, provided in Spotify's March 26 8-K filing, is revenue of €4.9 billion to €5.3 billion, up 20% to 30% year over year, and a gross profit margin of 23% to 25%, with an operating loss of €230 million to €330 million including an estimated total cost for the direct listing of roughly €35 million to €40 million in the second quarter.

Spotify Technology S.A. share price and market capitalization

The 8-K also shows Spotify has ambitious monthly active user, or MAU, and premium subscriber growth targets for 2018, with MAUs projected to increase by 26% to 32% year-over-year to 198 million to 208 million and total premium subs growing 30% to 36% to a range of 92 million to 96 million.

At the end of 2017, Spotify had reported 157 million MAUs and 71 million premium subs. Apple Music came in second place with a reported 36 million subs as of February 2018; based on reports from the Wall Street Journal, the company is growing at a monthly rate of 5% compared to 2% at Spotify. According to a Forbes article on April 4, Apple Music just reached 40 million paid subscribers.

Amazon.com Inc. has indicated it is the third-largest on-demand streaming music company behind Spotify and Apple Inc.'s Apple Music with a reported 16 million subscribers between Prime Music and Amazon Music Unlimited. That leaves Pandora Media Inc. in fourth place with 5.5 million paid subscribers, although it has a larger ad-supported user base with 74.1 million MAUs reported at the end of 2017.

Based on reports by Music Business Worldwide on April 4, Sony Corp.'s Sony Music, which had owned 5.71% of Spotify shares prior to the first day of trading, sold 17.2% of its stake in the company, representing a little less than a 1% total share, for over $250 million based on the April 3 closing price of $149.01.

In Spotify's prospectus filed April 3, Sony Music, before the April 3 shares sale in the first day of Spotify trading, was the fifth-largest shareholder behind Spotify co-founders Daniel Ek (27.1%) and Martin Lorentzon (13.1%), followed by Tencent Holdings Ltd. (9.1%) and Tiger Global (7.2%).

As reported by Music Business Worldwide, according to a memo released by Sony, the company projects that the unrealized valuation gain and the proceeds from the sale of Spotify shares will amount to roughly 105 billion Japanese yen, approximately US$1 billion, for the first quarter of the fiscal year ending March 31, 2019.