Spotify’s opening act on Wall Street is a big hit
Streaming platform is valued at about $27 billion after debut, according to FactSet
SAN FRANCISCO >> Spotify’s opening act on Wall Street struck a chord with investors betting the unprofitable company’s trend-setting music streaming service will maintain its early lead over Apple and other powerful challengers.
After several hours of anticipation Tuesday morning, Spotify’s shares traded as high as $169 in their stock market debut before falling back slightly. The stock closed at $149.01 — well above its previous high of $132.50 in deals worked out during Spotify’s 12year history as a privately held company.
The stock market’s warm welcome left Spotify with a market value of about $27 billion, according to FactSet. By comparison, internet radio station Pandora Media’s market value stands at $1.2 billion nearly seven years after that company went public.
The performance left Spotify’s market value among the 10 highest ever recorded by a technology company following their first
day of U.S. trading, according to Dealogic. Chinese ecommerce company Alibaba Group holds the top spot at $234 billion after its market debut in 2014.
Spotify CEO Daniel Ek who founded the company, emerged as the day’s biggest winner. His 27 percent stake in the Swedish company is now worth $7.4 billion.
The good vibes surrounding Spotify stem from its early lead in music streaming — a still-evolving field trying to hook people on the idea that it’s better to subscribe for online access to millions of tunes than to buy individual albums
and singles.
Spotify has attracted 71 million worldwide subscribers so far and is aiming to increase that number to as many as 96 million subscribers by the end of the year. It has 159 million total users, including people who are willing to listen to ads for access to free music.
Spotify’s success in music streaming has drawn comparisons to Netflix, which built upon its pioneering role in DVD-by-mail rentals and then video streaming to create a hugely successful, subscription-driven franchise that has produced spectacular investment returns and has minted the company with a market value of $122 billion.
A $10,000 investment in Netflix’s 2002 initial public stock offering would now be worth more than $2.6 million, leaving some investors wondering if Spotify might be on a similar trajectory in music streaming.
“The similarities here, we believe, are much greater than the differences,” RBC Capital Markets analyst Mark Mahaney wrote in a recent research note assessing the parallels between Spotify and Netflix.
Unlike Netflix, Spotify still isn’t profitable, having lost more than 2.4 billion euros ($3 billion) since it started more than a decade ago. After losing 1.2 billion euro, Spotify has also made it clear that it intends to remain focused on adding more subscribers instead of making money for now.
“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 Technology SA made its Wall Street debut in an unconventional way. It used a “direct listing” on the New York Stock Exchange that allows the company’s early investors and employees to sell as many shares as they want whenever they want.
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 $48.93 to $132.50 in privately negotiated transactions during the first 11 weeks of this year.