Issue of the week: the trouble with tech

Spotify has defied the jitters with a successful float. Can it help revive a crumbling tech market?

It has a been a wild two weeks for tech stocks, but Spotify has avoided the jinx, said James Titcomb in The Daily Telegraph. The Swedish music streaming giant floated in New York this week, and landed a $30bn valuation – “the third-biggest for a technology company on record”. The flotation attracted particular attention because of its unusual “direct listing” approach: Spotify didn’t sell any new shares – and thus avoided the expense and hassle of having to hire investment banks. There were fears that shares might “whipsaw” in early trading without the stabilising “book-building process” offered by banks. That didn’t happen, which could well tempt other big tech start-ups, notably Airbnb and Uber, to follow a similar path. The listing valued the stake of CEO Daniel Ek, who co-founded Spotify in 2006, at $2bn. He wasn’t on the NYSE floor when trading began, explaining that “our focus isn’t on the initial splash”.

This was truly “the first authentically millennial IPO”, said Thornton Mcenery on Dealbreaker. By neglecting to hire Goldman Sachs or Morgan Stanley to parade its “unprofitable business model”, Spotify has cocked a hipster-ish snook at “lame old Uncle Wall Street”. If you’re planning to take a punt, be aware that you’ll be “paying through the nose” for shares in that annoyingly self-righteous nephew in ripped black jeans you hate talking to at family gatherings. Yes, Spotify is “a lossmaking company that might not report a profit” for some years, said Peter Eavis in The New York Times. But its “paying customer base is enormous and expected to keep growing” – and it has “so far held its own in the face of competition from Apple, Amazon and Google”. Most significantly, it has won over the music industry and is “negotiating increasingly advantageous deals with record companies”. Give it a few years and it could be making gross margins of 35%.

But the sector as a whole is looking decidedly shakier, said the FT. In the past fortnight, “the five most valuable tech stocks have lost about $280bn” in market capitalisation, owing to investor concerns that political anger over their activities will lead to a wave of new “regulation or taxes”. The tech bosses are clearly feeling the pressure, said Richard Waters in the FT. How else to explain the war of words that broke out last week between Apple’s Tim Cook and Facebook’s Mark Zuckerberg, after Cook accused Facebook of invading its users’ privacy? To allow the cracks to show in public was dangerous: it makes the tech firms look weak, and if they want to resist regulation, they need to present a strong united front. Cook vs. Zuck shows we’re in unusual times.