Spotify makes record-setting direct listing; shares jump, then slide

04 April, 2018, 01:14 | Author: Grady King
  • The New York Stock Exchange decked out in Spotify colours on Tuesday

It faces tough competition from the second-largest streaming company Apple Music, which has 38 million subscribers. By 1:30pm EDT, the Wall Street Journal was reporting that Spotify was now valued at $30 billion, meaning that this could prove to be the third-largest IPO ever after Alibaba and Facebook.

The strong early trading for Spotify came on the heels of a steep U.S. equity selloff led by tech stocks, although the market had found firmer footing at midday. This also means that the company won't have a share opening price. Spotify kicked off trade at $165.90 and was down 3% at $160.50 in recent trade, after hanging around a range between $167 to $170, as holders of the stock tried to arrive at a price to kick of trade and market makers gauged overall demand.

In the US, subscribers can pay $9.99 per month for a standard music streaming plan, or $14.99 for a family plan with up to five accounts.

Spotify said it's focused on a long-term plan to continue growth.

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Its shares opened at $165.90, up almost 26 percent from a reference price of $132 a share set by the NYSE late on Monday, but later pared gains to trade at $149.30, as some investors expressed concerns about the company's costs and the difficulty of competing against Apple.

"Apple is growing faster than Spotify and has a different business model whereby music does not have to be profitable on a standalone basis", he said. The company is using an unusual direct listing process rather than the standard process used for nearly all IPOs.

Spotify is basically trying to recreate the secondary market activity that happened before it went public. It has about 71 million paying customers and hopes to increase that to 96 million. Instead, it is selling shares now help by its private investors and although this may save them some money, it ultimately makes the entire process volatile. While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company.

The company has structured the stock market listing to allow existing investors to sell directly to the public while offering no shares of its own, in a test case being closely watched by other well-funded multibillion-dollar tech firms with no immediate cash-raising needs.

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Traditionally, when a company wants to enter the stock exchange, banks are contacted to drum up investors and stabilize a price point.

"Even with all the buzz that it's going to be a great tech IPO year, they're still few and far between", says James Gellert, CEO of RapidRatings, which rates the financial health of public and private companies.

"If the stock is choppy when it takes off the stabilization agent attempts to create a floor of where the stock price could go", said Lise Buyer, an IPO consultant with Class V Group in Silicon Valley.

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