Spotify, which has become one of the most popular music streaming services in America, was recently valued at 13 billion dollars. According to Reuters, the company could be the first major company to initiate a direct listing on the NYSE. While it is unknown exactly when Spotify could perform the direct listing, it is believed it could happen as soon as the end of the year or early next year. The relatively new process of direct listing is different from the conventional initial public offering, since the need to work with a Wall Street bank or broker is removed from the equation. The major test will undoubtedly be watched closely by other companies that intend to offer shares to the public in the near future. Should Spotify’s direct listing be a success, other companies will likely follow in suit.
The technology firm, which is based out of Sweden, is actively working with several investment banks, including Goldman Sachs, Morgan Stanley, and Allen & Co. With a traditional IPO, investment bank underwriters would be employed to sell new shares for the company. The price is determined by feedback from investors. On the other hand, companies do not need to raise money by selling new shares with a direct listing. Through a direct listing, the company’s shares will become available to the public almost immediately. In return, this would allow investors and employees to buy and sell shares as they desire.
While direct listings could eventually overtake IPOs in terms of usage, there are some risks involved. If no investment banks guide the listing process and help to determine the price, shares could experience increased market volatility. Simultaneously, the direct listing eliminates the lock-up period and gives early investors the option of selling their stocks immediately. This could result in major fluctuations in price as early investors and employees sell their shares just as the stock begins trading publicly.
To date, Spotify has not posted a profit. The company’s Luxembourg-based holding company recently confirmed it has lost approximately 189 million dollars in 2015. The company is actively expanding to new markets, while also building offices in New York. These additional costs could be the cause. Before an IPO or direct listing, it is believed Spotify will focus on securing deals with Sony Music and Warner Music Group. Spotify was recently valued at 13 billion dollars. More details about Spotify and their potential direct listing can be found at Reuters.