Spotify ready to put stock-listing strategy to the test
Spotify has filed to go public on the New York Stock Exchange, according to a person familiar with the matter, in the highestprofile test yet of a technique that lets companies list shares without raising money through a traditional stock offering.
With steady cash from more than 60 million paying subscribers, the world’s largest paid music-streaming service doesn’t need more funding. Instead of an initial public offering, it’s trying a direct listing, which essentially lets private stakeholders start trading their shares on a public exchange. That avoids underwriting fees and restrictions on stock sales by current owners, and doesn’t dilute the holdings of executives and investors.
Spotify, which has been valued at about US$15 billion, would be the most prominent company by far to attempt a direct listing, a method that until now has been used by small issuers and real estate investment trusts. It would also be a first for the New York Stock Exchange, which has sought permission from the Securities & Exchange Commission to change its rules for the occasion.
Spotify sent confidential documents to the SEC in late December with the aim of listing its shares in the first quarter of this year, said the person familiar with the matter, who asked not to be identified discussing private information. Axios reported the filing earlier Wednesday.
Non-public filings have become more common since July, when the SEC began letting all companies file early IPO or stock-listing regulatory documents confidentially — a perk previously reserved for smaller businesses. The initial privacy is meant to make the listing process more efficient and encourage more companies to go public. Spotify may be able to keep the documents private until at least 15 days before the share offering is effective.
If the operation is successful, it could pave the way for other big tech firms, such as Airbnb and Uber, if they decide to go public and current investors don’t want their stakes diluted.
The move has its risks. Without underwriters, Spotify shares won’t debut with a price based on investor feedback, with buyers lined up. An unusual format can also cause unforeseen problems, as Google discovered in its 2004 Dutch-auction IPO.
Investors have few opportunities to invest directly in the music business, which is in the early stages of a recovery from years ravaged by piracy and a steep decline in CD sales. Online radio service Pandora Media Inc. has struggled to grow in recent years, a red flag for potential investors. But unlike Pandora, Spotify has persuaded tens of millions of people to pay a monthly fee.
While the company is the market leader in music streaming, it faces growing competition from tech giants Apple Inc., Amazon. com Inc. and Alphabet Inc.