Spotify listing could be roller coaster for retail investors
NEW YORK/SAN FRANCISCO: Spotify Technology SA’s unusual stock market debut today levels the playing field for individual investors who are normally at a disadvantage in traditional listings, but could also make them more vulnerable to swings in the music streaming service’s share price.
The Swedish company is skipping a conventional initial public offering and listing shares directly on the New York Stock Exchange (NYSE) with almost none of the safeguards provided by investment banks that would normally manage the process. Spotify is forgoing the security of having bankers with a financial interest in its success, which will save it millions of dollars in fees to underwriters. The direct listing gives Spotify insiders a chance to sell their shares, but the company will not be selling any new stock to raise money.
In a normal IPO, underwriters promote a company to institutional investors weeks in advance, using roadshows and meetings to gauge appetite for the stock. They use that information to “build a book” and settle on an IPO price, typically the evening before the shares start trading on the exchange. Spotify’s
plan introduces an extra degree of uncertainty over how initial trading in its stock will unfold. And a slump in shares of Facebook Inc and other technology-related stocks this week means investors may be less willing to bet on the listing.
The direct offering should give retail investors opportunities to buy in at the same price as hedge funds and other big investors who normally get first dibs on IPOs thanks to their relationships with underwriters. Spotify has warned in filings it expects the popularity of its service to attract outsized interest from individual investors, which could possibly fuel volatility and set an unsustainable trading price.
“There will be people right from the beginning who say, ‘I want to own this at any price,’” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “I think you’ll see a see-saw action. — Reuters