Spotify shares surge after direct listing

04 April, 2018, 01:13 | Author: Yolanda Murray
  • Spotify has said it chose a direct listing because it doesn’t need to raise more money. It also says the process is fairer to investors

However, as The Guardian points out, it's hard to value the music streaming firm because in its 12 years of existence, it's never turned a profit, despite the fact that it now has 157 million listeners, of which 71 million are paying subscribers. It generated about $5 billion in revenue previous year, up more than 40 percent from 2016, and a $1.5 billion net loss compared to about $664 million in 2016.

Analysts had anxious ahead of Spotify's direct listing that forgoing hiring investment banks as underwriters or holding traditional promotional events with institutional investors could mean volatility once formal trading kicked off. This allows investors and staff of the Sweden-based company to sell as many company shares as they want, when they want. As of this writing, Spotify's share price is trading at $160. Launched in 2008, the company claims to have almost 160 million monthly active users, across dozens of countries.

Drew Pascarella, lecturer of finance at Cornell SC Johnson College of Business, says that Spotify's unorthodox listing is a one-off, unique situation as the company does not resemble classic pre-IPO firms. On Monday, the New York Stock Exchange set a reference price for Spotify stock at $132.

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Apple said subscriptions have maintained a monthly growth rate of 5 percent and they have 36 million subscribers in the United States.

Tomorrow, Spotify becomes a listed public company on the New York Stock Exchange. Experts warned of some major volatility though due to Spotify's unusual 'direct listing'. Here's a piece outlining all you need to know about Spotify's public debut.

"This won't be replicated often", Matt Kennedy, an analyst with Renaissance Capital, told CNN.

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Track Spotify's stock in real time here. Instead of paying more than $65 million in fees to Wall Street investment banks, Spotify will likely pay half as much, market analysts said.

Spotify has helped change the way much of the world listens to music by popularizing streaming - unlimited, on-demand songs online. Instead, current shareholders were able to sell their existing shares, and were not restricted on when they could do so. While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company. Looking ahead, Spotify recently claimed that its paid subscriber base may grow to upwards of 96 million users by the end of 2018.

For its public offering, Spotify has taken an unconventional and somewhat risky approach called direct listing, a route normally taken by small-cap companies, usually in biotech and life sciences. As much as this sounds like great news, what does this floatation really mean for the company?

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