Cue up your favorite playlist if you’re an early Spotify shareholder.
Spotify is set to make its Wall Street debut on Tuesday, with the Swedish music streaming kingpin taking a unique approach — especially for a company of its size — to going public. As shares get ready to start moving on the New York Stock Exchange, here are a few things to keep in mind on the world’s biggest streaming platform.
The first thing that comes to mind when a company starts trading is how much its stock will cost per share. Spotify has been trading with a wide gap on private markets as it headed into Tuesday. About 5 million shares were traded in early March, ranging between $49 and $132, according to a recent SEC filing. The NYSE pegged Spotify to the high end on Tuesday morning, with the company listed at $132 per share before its first trade.
Direct Listing — Wha?
There’s a reason it’s been harder to pin a price to Spotify before Tuesday. The Stockholm-based company bypassed the more traditional public offering route, opting for a direct listing instead — something usually more inline with small biotech companies. The direct listing allows Spotify to, you guessed it, sell its shares directly to the public, without the backing of a major Wall Street underwriter. This cuts down on costs for Spotify, but without an underwriter helping set an opening price to lure in investors, adds a measure of uncertainty. The company will trade under the “SPOT” ticker symbol.
The direct listing, as Bloomberg noted on Tuesday, leaves plenty of questions unanswered. Spotify has issued 178 million shares of stock, and it’s unclear how many will be made available for trading once it begins moving on Tuesday. Unlike many other high-profile public offerings, there isn’t a lockup period, where investors are barred from selling shares until down the line. Early shareholders or employees could look to sell their shares ASAP, or hold on and see how the market reacts. At $132 per share, Spotify would carry a $23.5 billion valuation — making it the largest direct listing in history.
You’re probably wondering how strong Spotify’s grip on the streaming world is. The company announced earlier this year it had passed 70 million paying subscribers. Spotify charges $9.99 for its “Premium” membership, which axes ads and offers other perks. Altogether, there are 157 million active streamers, in 61 countries, on Spotify. That gives it a healthy lead on its chief rival, Apple Music, which has “only” about 36 million paying users — although that gap is rapidly narrowing.
Any investment carries risks, even a company as ubiquitous as Spotify. In an investor note shared with TheWrap, RBC Capital Markets analyst Mark Mahaney pointed to stiff competition from Apple, Amazon, and Google, as a potential stumbling block. Another pressing issue: its hefty payments to record labels. Spotify shared last summer it plans on handing out more than $2 billion in 2018 and 2019 to labels to keep the hits coming. The company posted a loss of about $1.5 billion last year — something it’ll have to turn around to keep investors aboard.
Overall, however, Mahaney is still bullish on Spotify, pointing to the company’s impressive revenue growth (hitting nearly $5 billion last year), a frothy global market, and tech advantages that drive users to listen to more music. Mahaney placed a $220 price target on Spotify to open coverage.
We’ll soon find out if investors share the same enthusiasm for Spotify.