Spotify Gears Up For $1B IPO

Music streaming service Spotify has filed for a direct listing of its shares as it prepares for its debut on the New York Stock Exchange in late March or early April.

According to NPR, instead of entering the market through an IPO, Spotify will simply list its shares on the NYSE, trading as SPOT.

That move means investors and employees can sell shares without the company raising new capital or hiring anyone to underwrite the offering — saving Spotify an estimated $300 million.

“It’s like saying, ‘I got the coolest house on the block. Everyone will want to buy it, so why give a cut to a broker,’” says George G.C. Parker, a finance professor at Stanford Graduate School of Business. “Spotify, by doing this, is very confident that the public already understands Spotify’s value, and that it does not need others to tell the story.”

Since the company will not be issuing any new shares, it didn’t mention a listing price. However, Reuters estimated it is valued at around $19 billion.

Launching in 2008, Spotify is available in more than 60 countries, making it the biggest music streaming company in the world. Yet the company is not yet profitable.

In the filing, Spotify revealed its full financial data for the first time, showing that revenue rose 39 percent to 4.09 billion euros ($4.99 billion) in 2017, from 2.95 billion euros a year earlier. Its operating loss widened to 378 million euros in 2017 from 349 million euros.

“The revenue continues to grow — but in particular, their costs are growing slower than revenue, which is exactly what you expect in a business like this,” said Jay Ritter, an expert in initial public offerings and professor at the University of Florida.

But while Synovus Trust portfolio manager Dan Morgan described Spotify as “interesting,” he wondered “how can Spotify monetize its user base beyond a $5-$15 monthly subscription fee?”