In this day and age, the decision of a tech-based company to make initial public offerings on the stock market is a leap of faith that has only two outcomes: they either make bank, prospering enough to grow and expand, or they start to flounder in a sea of uncertainty. The latter appears to be the impending fate of Snap Inc. which runs the Snapchat app, following their going public last year. This week, another prominent tech service will be making the private-to-public transition: Sweden-based music streaming service Spotify. The question is, will investors dig in? Signs point to “likely”.
The Washington Post reports that the IPO for Spotify, to be made on Wall Street this Tuesday, April 3, is one of the most highly-anticipated out of all tech outfits thus far since the hype for Snapchat in 2017. Its market debut however, is with one of the strangest offerings ever undertaken by a company going public in recent memory. Notable has been Spotify AB’s decision to bypass certain steps in the IPO process for Wall Street. Such unorthodox maneuvers have got NYSE analysts baffled to the point that some of them are not considering it an IPO at all.
Specific details of Spotify’s entry into Wall Street are as follows. The streaming music platform is not raising money for the IPO, but is letting their private investors and employees to sell their shares. The proceeds of which will be put in a direct listing on the stock exchange trading under (SPOT). This direction was laid down by Spotify founder and CEO Daniel Ek last month at an investor day procession. Even further, on trading day when SPOT will debut, the company will not even ring the opening bell at Wall Street, leaving that to the Epic Players theatrical group.
Analysts have been studying this approach by Spotify and they are seeing a potentially different and effective roadmap for other private household names in the tech industry to follow, as DataTrek Research co-founder Nicholas Colas notes. “It opens the door to any unicorn out there that focuses on the consumer,” he says, theorizing a possibly successful IPO that does not result in price fluctuations with the Spotify service, or with a lopsided buyer-seller mismatch. But the untested nature of their process necessitated the NYSE to secure approval from the Securities and Exchange Commission, something its rules actually would have prevented.
Spotify was founded in 2008 and has since grown internationally where it can claim to have two times more paying customers than its closest rival, Apple Music. Its on-demand music subscription service payment model is being considered as a possible way to stave of the deterioration of the music industry.
Photo courtesy of Bloomberg