In late December, Bloomberg reported that fintech company Sq. (NYSE:SQ) was in talks to purchase music streaming service Tidal in a “push to diversify.” No potential supply value was given, however Sq. CEO Jack Dorsey has been seen twice in the previous few months with Tidal’s majority-owner Jay-Z, supposedly negotiating some kind of partnership.
Tidal has struggled through the years to realize floor relative to different streaming providers like Spotify and Apple Music, so it is sensible that it might be looking for a purchaser. However why Sq.? On its face, this potential tie-up appears unusual. Nevertheless, if buyers look deeper into what Sq. is doing with its Money App peer-to-peer cost service, they might understand that such a mixture would not be so odd in any case.
How Tidal would match into Sq.’s enterprise
One doable cause Sq. is excited about proudly owning Tidal is that it might combine its providers and use it as a advertising and marketing device for the Money App. The latter’s success competing in opposition to PayPal‘s Venmo over the previous few years could be partially attributed to its reputation throughout the music trade, and particularly the hip-hop neighborhood. For instance, it’s estimated that Money App has been name-dropped within the lyrics of greater than 200 hip-hop artists, and the corporate has executed many paid giveaways with the likes of Travis Scott and Cardi B, two giants within the style. Sensible campaigns like these are an enormous cause why Money App has grown from below seven million customers to greater than 30 million over the previous few years.
Tidal has an estimated a million to 5 million subscribers (it not often discloses person numbers) who’re both paying $9.99 a month for its commonplace service or $19.99 for premium sound high quality and unique content material. Sq. might (for instance) supply reductions on these subscriptions to individuals who paid through the Money Card, the free debit card related to Money App. It additionally might supply giveaways and promotions on Tidal, utilizing it as a advertising and marketing car to draw prospects to Money App’s providers.
The opposite aspect of the argument
Whereas it is an fascinating train to give you theories about how Sq. might leverage Tidal to assist with its advertising and marketing, all acquisition offers come right down to prices versus advantages. With out seeing the financials, it’s powerful to estimate what value the service’s artist-owners would search, however there are some clues. Jay-Z bought Tidal for $56 million again in 2014, and Dash invested $200 million into it some time later. If its subscriber numbers have not grown a lot since then, the acquisition value could be within the ballpark of $250 million, which is minuscule in comparison with Sq.’s $100 billion market cap.
There are additionally indicators Tidal could also be struggling as a enterprise. In 2019, Jay-Z introduced his whole catalog again onto Spotify (it was unique to Tidal), an indication that the service wasn’t residing as much as expectations. Tidal additionally pays the best royalties per-stream of any music streaming service. Whereas that artist-centric mannequin could also be extra supportive of the individuals who truly create the music, it possible means Tidal is dropping cash. Even Spotify, the most important of the streaming gamers with near 150 million paying subscribers, barely makes a revenue.
So buyers in Sq. must ask themselves: Would the advertising and marketing synergies be definitely worth the $100 million to $250 million price ticket of an enterprise that may by no means generate a revenue? Until Dorsey thinks he can get it at a bargain-bin value, it’s powerful to see why Sq. can be a greater firm after shopping for Tidal. This may very well be a reprise of the Caviar deal. That was one other money-losing entity in a tricky enterprise (meals supply) that Sq. bought again in 2014. It ended up promoting the service to DoorDash in 2019, albeit at a better value than it paid.
It definitely would not be the tip of the world if Sq. acquired Tidal. It might use the service to assist lure extra customers over to Money App, and the acquisition would not burden its steadiness sheet. However buyers shouldn’t soar for pleasure if a proper deal will get introduced.