WHEN Spotify, a music-streaming service, went public on April 3rd, its founder, Daniel Ek, rang no bells on the trading floor of the New York Stock Exchange. Rather than the “pomp and circumstance” of an initial public offering, the Swedish firm, which is widely credited with turning round the fortunes of the music industry, opted for an unusual direct listing. No new shares were issued. Bankers did not sign up new investors, set a target price or stabilise early trading. Existing investors were simply allowed to trade their shares publicly.
Despite the low-key approach, and even as other tech firms’ shares wobbled, there was plenty of interest. That will cheer other firms considering going public. The share price ended its first trading day at $149, comfortably above prices reached in private markets earlier this year. That values the company at $26.5bn, making it the largest firm to list since Snap last year, and the eighth-largest tech listing ever.
Like many other tech “unicorns”, or startups valued at over a billion dollars, Spotify has yet to turn a profit. With over 70m paying users (see chart) and, by its own estimate, a 40% market share, it has plenty of appeal. But investors will be watching for signs of slowing revenue growth, says Laith Khalaf of Hargreaves Lansdown, a stockbroker. Spotify’s main rivals, Apple, Amazon and Google, have deep pockets. Low prices and bundled services could lure its customers away. If record labels were to demand higher royalties, that would increase its costs.
Traders took a few hours to reach a price—hardly surprising, since sales were not lined up in advance. Oversupply did not flood the market, even though existing shareholders were not subject to the usual lockup period. Nor did undersupply lead to jerky pricing, though there was some volatility the following day.
Spotify has shown that direct listing is feasible. Matthew Kennedy of Renaissance Capital, a research firm, reckons it saved over $30m in fees to investment banks (although some were paid for advising on the listing). Bankers need not fret for their futures, however. Spotify was hardly typical of firms going to market. Its brand needed no introduction. It did not need to raise capital: the listing was a way for existing shareholders to cash out. Even if another company were in a similar position, its founders might prefer to pay bankers’ fees rather than run the risk of early volatility. And some, no doubt, would like to have their moment in the limelight.