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Spotify wants to sell stock to investors in an unconventional way

posted onMarch 2, 2018
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Sweden-based Spotify, the world's leader in streaming music services, plans to raise as much as $1 billion by selling stock to investors. The 10-year-old company filed to go public on Wednesday and will begin trading on the New York Stock Exchange under the ticker name SPOT but there is no indication of when that will begin.

Spotify will take the unusual step of filing for a direct listing instead of an initial public offering, meaning that its shares can be traded on the open market sooner than with a more conventional IPO. Under a direct listing, a company does not set the initial price but instead will let the flow of buy and sell orders determine the price. CNBC reports that Spotify's shares have traded as high as $132.50 on private markets, which would give the company a valuation over $23 billion.

"As this listing is taking place via a novel process that is not an underwritten initial public offering, there will be no book building process and no price at which underwriters initially sold shares to the public to help inform efficient price discovery with respect to the opening trades on the NYSE. Pursuant to NYSE Rules, we have engaged Morgan Stanley & Co. LLC ("Morgan Stanley") as a financial advisor to be available to consult with the designated market maker (the "DMM") in setting the opening public price of our ordinary shares on the NYSE. Based on information provided by the NYSE, the opening public price of our ordinary shares on the NYSE will be determined by buy and sell orders collected by the NYSE from broker-dealers and the NYSE is where buy orders can be matched with sell orders at a single price" Spotify explained in the filling. 

The company whose full name is Spotify Technology had $4.99 billion in revenue in 2017, up 39 percent from 2016 and more than double the previous year. Losses for last year were $1.46 billion, which compares to $657 million the year before. By the end of 2017, Spotify,  which began its streaming service in Sweden in 2008 and is now present in 61 countries, had 71 million paying subscribers and more than 159 million monthly so-called active listeners. The filling also claims that Spotify holds a 41% share of the global market. 

Spotify is led by Daniel Ek, a Swedish entrepreneur who co-founded the company with Martin Lorentzon, previously raised more than $1 billion in equity and obtained a $1 billion convertible loan. Accel, Kleiner Perkins and Founders Fund are amongst the Valley Venture Capitals that invested. Goldman Sachs and Fidelity also own part of Spotify. 

While the company is the market leader in music streaming, it faces growing competition from tech giants Apple, Amazon and Google-parent  Alphabet. However, Billboard  reported that Spotify currently has around 17 percent of the market of overall music purchases from U.S. record labels, while Apple Music has about 15 percent. 

"We set out to reimagine the music industry and to provide a better way for both artists and consumers to benefit from the digital transformation of the music industry," the company said in its filing. "Spotify was founded on the belief that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans."

The New York Times reported that the market for public offerings has been robust so far this year. Through late February, 30 companies listed their shares publicly on markets in the United States, raising $11.4 billion from investors. That was the strongest annual start for the market since 2000, according to data from Thomson Reuters. Goldman Sachs, Morgan Stanley and Allen & Company are advising Spotify on the public offering.

UPDATE 03/04/2018 14:01

Spotify's direct listing is expected to start trading on the New York Stock Exchange today. NYSE on Monday set the reference price for shares of the Swedish music streaming service at $132. The reference price is not an offering price for the shares, nor is it the opening public price for shares of Spotify Reuters reported.

UPDATE 03/04/2018 18:19

Spotify's IPO gave the Swedish streaming music giant a market valuation of $26.6 billion. The company’s shares closed today at $149.60, up 12 percent from the initial reference price of $132, but down from a high of $165.90 when shares debuted on the New York Stock Exchange this morning.