Spotify’s direct listing piles risk upon risk amid fears over tech valuations

Music streamer Spotify’s direct listing was unusual enough already, without coming as specific fears over Facebook and Amazon are spilling over into wider tech valuations.

On April 3, the Swedish firm allowed current owners to sell stock directly to new investors. Traditionally, companies conducting initial public offerings ask investment bankers to play matchmaker, set an inaugural price, and buy shares to stabilize the stock if needed on the stock’s opening day.

With Spotify, both the price and the number of shares were up for grabs.

Almost all the shares could have traded on day one – or very few.

That raised the potential for the stock to whipsaw as it searched for a natural settling point.

Meanwhile, the broader tech market is swinging.

Facebook has lost nearly $90 billion in equity since mid-March after reports about leaked member data. Amazon is in the crosshairs of US President Donald Trump who believes the e-commerce giant is ruining the United States Postal Service. Shares in Jeff Bezos’ firm fell some 6 percent on April 2.

Those alone won’t have troubled Spotify founder and Chief Executive Daniel Ek. But the wider unease might. Netflix, which like Spotify depends on subscriptions for revenue, declined some 5 percent on Monday.

Investors may still have an appetite for the new. Renaissance Capital figures the 44 IPOs in the US during the first three months of 2018 made for the best quarter in three years by proceeds, raising nearly $16 billion.

The technology sector raised over two times the amount of any other.

Online-storage firm Dropbox is up some 40 percent since its public debut on March 23, even though it too has started to lose some ground.

It’s admirable that Ek has forgone an IPO. By doing so he has allowed for his employees to sell shares without the constraints of a lockup period that can artificially prop up a company’s value. Instead Spotify is attempting to get at its true worth faster.

The trouble is the market uncertainties are likely to add up to a heap of volatility.