Shazam’s valuation has fallen over the last 18 months, as the company’s profits stalled
Apple has reached an agreement to buy UK based music identification app Shazam, in a deal worth around £300 million, according to media reports.
While neither side has commented on the potential deal, the £300 million price tag places a significantly lower value on Shazam than the company’s £750 million (£1 billion) valuation at its 2015 IPO.
The fall in value is due to lower than expected profits, according to Richard Windsor, analyst at Edison Investment Research.
"The issue Shazam has had is that it has had great difficulty in making money as 2016 revenues appear to have been around $50m with the company hovering around break-even. The company has not grown nearly as quickly as it expected which has meant that profits expected by investors have not materialised making them willing to consider a lower offer," he said.
Should the deal go through, Shazam could be amalgamated into Apple’s Apple Music technology in the near future.
"From Apple’s perspective, we do not see this as an acquisition of a service but much more a technology. Shazam has been analysing and recognising music for nearly 20 years and as a result is pretty good at characterising, recognising and understanding music. This is one of the traits that makes Spotify’s service so good as it is able to take that and match it to users’ tastes. Consequently, we see Apple taking Shazam’s technology and incorporating it into Apple Music in a bid to improve its service and compete more aggressively with Spotify," he added.
Currently Apple Music has 27 million subscribers, while Spotify has 60 million.
"The market is big enough for two players to thrive and Apple and Spotify remain at the top and look unlikely to be seriously challenged," said Windsor.