The Atlanta Journal-Constitution
Spotify’s eagerly awaited stock falls from $165.90 debut
Spotify made its highly anticipated Wall Street debut Tuesday, with an opening price of $165.90, giving the music streaming company a valuation of $29.5 billion.
The price was 25 percent more than the reference price set by the New York Stock Exchange, based on how the stock traded on private markets before public trading began.
During the first moments of its public listing, Spotify’s stock experienced stable trading before falling more than 9 percent in the afternoon, to $150. It closed at $149.01. Analysts had anticipated volatility during Spotify’s market debut because the company chose an unusual path to go public.
The streaming service giant, which trades under the symbol SPOT, bypassed many of the traditional steps of a Wall Street public offering. Company executives did not conduct a roadshow to convince big institutional investors, such as pension and mutual funds, to buy shares. Its chief executive even skipped the usual New York Stock Exchange ritual of ringing the opening bell. Epic Players, a theater group, performed the honors.
What made Spotify’s public debut most notable, however, was how it offered its stock. Rather than issuing new shares, Spotify instead conducted a direct listing, in which no money was raised but existing shares were sold by employees and investors.
“Normally, companies ring bells. Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment,” Daniel Ek, Spotify’s founder and chief executive, said in a blog post Monday. “As I mentioned during our Investor Day, our focus isn’t on the initial splash. Instead, we will be working on trying to build, plan and imagine for the long term.”
Spotify had warned that its stock
price could be more volatile than normal in the first day of trading since it did not use an underwriter to go public. It does not have some of the safeguards traditionally provided by investment banks, which try to prevent new stock from falling below a certain price.
“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. “The biggest risk is we don’t know where these shares are going.”
If Spotify’s stock rises in the weeks ahead, its direct listing could become a road map for the array of multibillion-dol- lar tech companies that investors are hoping will go public soon, including Airbnb, Lyft and Uber. “It opens the door to any unicorn out there that focuses on the consumer,” said Nicholas Colas, co-founder of DataTrek Research.
The streaming service’s market debut has long been antic- ipated by investors. Launched in 2008, the company claims to have nearly 160 million monthly active users, across dozens of countries. It says it believes it has more than twice as many paying customers as its closest competitor, Apple Music, according to SEC filings. Apple has said 36 million people pay to use its music streaming service, according to The Wall Street Journal.
Spotify has positioned itself as a key contributor to the reversal of the music industry’s decline, by convincing millions of people to pay for an on-demand music subscription service.
The company’s growth has been matched by increasing losses. It generated about $5 billion in revenue last year, up more than 40 percent from 2016, and a $1.5 billion net loss compared with about $664 million in 2016.
Spotify declined to comment for this story, citing the SEC-mandated “quiet period,” which restricts companies from making certain public statements during the going-public process.
Spotify’s unusual approach required the 200-year old NYSE to change its rules and secure approval from the Securities and Exchange Commission. It also allows the company to avoid some of the most frustrating aspects of a traditional public debut. Employees and investors do not face the same restrictions on when they can sell their stock, for example.
“It’s an untested process,”
said Matt Kennedy, IPO marin introducing companies to ket strategist for Renaissance large investors, Buyer said. But Capital LLC, an investment Spotify is already well known research firm. “It has never and doesn’t need those types been done for a company of of introductions, she said. this size.” It will also not be selling
For Spotify, the direct list- any new company shares. ing process will save money Instead, company insiders by minimizing the role tradiand investors will sell their tional Wall Street banks play existing stock. Many of these in the process. Instead of payemployees typically would ing more than $65 million have been barred from sellin fees to Wall Street invest- ing their stock for at least 180 ment banks, Spotify is likely days in a traditional IPO, Kento pay half as much, market nedy said. A direct listing elimanalysts said. inates those restrictions and
Bank underwriters typi- lets them potentially profit cally play an essential role from the IPO immediately.