Spotify Technology SA (SPOT, Financial) debuted on the New York Stock Exchange at $165.90 per share on Tuesday. The opening price was approximately $30 higher than NYSE’s reference price of $132.
Spotify detours from the standard IPO
According to CNBC, Spotify pursued “an unusual direct listing” instead of the standard initial public offering.
While Goldman Sachs Group Inc. (GS, Financial) and Morgan Stanley (MS, Financial) advised the Swedish music streaming service on the offering, Spotify conducted a direct offering, i.e., no banks underwrote the offering and no price was set ahead of the debut. CEO Daniel Ek mentioned the company is not raising capital and that its shareholders and employees have freely bought or sold shares for years.
Company background
Spotify discloses on its website that it brings customers “the right music for every moment” on various media platforms, including personal computers and mobile devices. As discussed in its prospectus, Spotify had 159 million monthly active users as of Dec. 31, 2017, up approximately 29% from the prior year.
The company also reported a 46% year-over-year increase in subscribers to its premium service, which allows for “unlimited online and offline high-quality streaming across [Spotify’s] catalog.” Spotify said its 71 million subscribers represent approximately twice the number of Apple Inc.’s (AAPL, Financial) Apple Music subscribers. Over the past three years, the company’s strong customer base drove revenues, which have grown approximately 45% per year.
Despite good revenue growth, Spotify mentioned two major risks: competition in the industry and a history of operating loss. Large license expenses and royalty payments to music labels and publishers contributed to year-over-year losses for at least the past three years. Additionally, the company warned that increased competition from tech giants like Alphabet Inc.’s (GOOGL, Financial) Google Music and Amazon.com Inc.'s (AMZN, Financial) Prime Music can cut into Spotify’s revenue growth.
Disclosure: No positions.
