Spotify wins more fans on Wall Street

Capital Markets analyst Mark Mahaney wrote in a recent research note assessing the parallels between Spotify and Netflix.

Besides blending technology with a subscription model to reshape a popular form of entertainment, Spotify and Netflix have a common executive in their lineage. Spotify’s current chief financial officer, Barry McCarthy, held the same job when Netflix went public and remained in that position until leaving the video service in 2010.

Unlike Netflix, Spotify still isn’t profitable, having lost more than 2.4 billion euros (US$3 billion) since it started more than a decade ago. Spotify has also made it clear that it intends to remain focused on adding more subscribers instead of making money for now.

Netflix has also set itself apart from its rivals in video-streaming by spending billions on original programming such as Stranger Things, and The Crown. Analysts are worried that will be more difficult for Spotify to do because it is primarily negotiating for the same musicstreaming rights as Apple, Google and Amazon — companies that can afford to pay even more, if they want.

“One of the big questions about Spotify is whether they can take it to the next level like Netflix has,” said Daniel Morgan, senior portfolio manager for Synovus Trust.

Spotify also is making its Wall Street debut in an unconventional way. It’s using a “direct listing” on the New York Stock Exchange that will allow the company’s early investors and employees to sell as many shares as they want whenever they want. That’s a departure from a traditional initial public offering in which a company and a few select investors first sell a limited amount of stock at a starting price determined by investment bankers who spend weeks gauging investor demand.

The direct listing could result in wild swings in Spotify’s stock pricing during the first few days of trading, especially since Spotify’s shares sold in a range of US$48.93 to US$132.50 in privately negotiated transactions during the first 11 weeks of this year.

“Normally, companies don’t pursue a direct listing. While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company,” Spotify CEO Daniel Ek wrote in a blog post .

“Our focus isn’t on the initial splash,” he added. “Instead, we will be working on trying to build, plan, and imagine for the long term.”