Don't Stop Believin': Jeronimo Folgueira's Deezer Reboot

Jeronimo Folgueira became CEO of French music streaming service Deezer less than one year ago. Though Deezer is often viewed as an also-ran in the streaming music market, Folguiera told us in a recent podcast that he didn't join the company to play for symbolic victories.

Looks like he wasn't kidding.

Deezer announced today that it agreed to go public on the Paris Stock Exchange via a SPAC (Special Purpose Acquisition Company) that was launched last year as I2PO. While the SPAC phenomenon has cooled since the boom in 2020 and 2021, the vehicles still offer a way for a private company to go public with less scrutiny and less risk. In late June, the entities will officially fuse and trade under Deezer's name.

Iris Knobloch, a former WarnerMedia executive, led the creation of I2PO last summer. Though she is German, Knobloch has deep roots in the French business world. She serves on the board of AccorHotels and last month was elected president of the Festival of Cannes. For the SPAC, Knobloch partnered with the Artemis Group, the investment vehicle of French billionaire François Henri Pinault (founder of luxury group Kering), and Centerview Partners' Matthieu Pigasse (who has a mini media empire that includes co-ownership of Le Monde with Xavier Niel who was an early Deezer investor).

"We are in it for the long run," Knobloch said at a press conference Tuesday morning. "And that's what really differentiates us from other SPACs. I left Warner Brothers, where I spent 25 years, last June to dedicate myself full time to the success of this project."

The stated goal of I2PO was to acquire one or more companies in "streaming and content distribution, music, intellectual property of media and services, electronic games and sports, online learning, and leisure platforms." With Deezer, it has done that in a deal that values the platform at €1.05 billion.

But in acquiring Deezer, the SPAC's backers are not exactly getting a company that has set the world on fire. According to financial statements made with the deal's announcement, Deezer lost €123 million in 2021 on €400 million in revenue for 2021, compared to a €94.4 million loss on €379 million in revenue for 2020. The company has lost more than €600 million over its lifetime.

The company had €35 million in cash on hand at the end of 2021. That includes €25 million in government-backed Covid emergency loans that Deezer received in January 2021 from BNP Paribas, HSBC Continental Europe, and Bpifrance. However, Deezer also will eventually owe €32.9 million in employee-related social benefit charges that were suspended during Covid.

Deezer has set some aggressive revenue targets, projecting revenues will grow from €400 million in 2021 to €1 billion by 2025. As Reuters noted, this deal carries some heavy risk and rosy projections:

Deezer’s revenue grew at just 5.5% in 2021 and shrank slightly in 2020, compared with growth of 22.7% and 16.5% respectively for $26 billion rival Spotify Technology. The French group is loss-making at the EBITDA level, while analysts expect Spotify to squeeze out a 2% margin this year...Based on their target’s financial projections, the enterprise value is 2.4 times 2022 revenue – a 29% premium to Spotify.

According to disclosures filed with the deal, Deezer has 9.6 million paid subscribers, including 5.6 million who subscribe directly and 3.9 million who subscribe via a B2B partner.

Despite that uncertainty, Deezer will raise at least €135 million via the deal and could raise as much as €425 million depending on how the SPAC performs (which could come down to how convincing those projections are). All of the money will go to the company. None of its shareholders or insiders are cashing out as part of the deal.

For Folgueira, this is the ammunition the company needs to re-launch its global assault and catalyze – at long last – its growth.

While Deezer is available globally, it is only a leader in France (30% market share) and Brazil (17% market share). That breaks down to 4.2 million subscribers in France and 2.7 million in Brazil. This summer, the company will focus on building its presence in Germany via a partnership with RTL (more on Deezer's business model below).

"We have a great product and we are passionate about music," Folgueira said at the press conference. "And we're more passionate about music than any of our competitors. The tech giants are focusing on everything else that they do. And Spotify is increasingly focusing on podcasts. We believe there's an opportunity for us to work very closely with the artists and with labels and create a true home of music and unlock the full potential of music through technology."

For Deezer, the SPAC is the latest turn in a saga that has often seen great moments of promise followed by big disappointments. Folgueira believes he has a plan that will at long last break that cycle.