Spotify's stock market debut could serve as a blueprint for others
Swedish music streaming service Spotify's unusual path to the stock market could find many imitators, depending on its success. "Everyone will be watching to see what happens with Spotify," says Columbia Law School professor John Coffee.
Spotify becomes a listed company by means of a direct placement, which eliminates the usual up-front pricing process organized by banks. There is no advertising tour to investors to pitch the shares, nor is there a subscription period or an issue price that is determined. This approach is inexpensive and saves time, but it also involves risks. It is the first time this has ever happened on the New York Stock Exchange (Nyse).
Uber and Lyft as possible imitators
Observers assume that other companies could also acquire a taste for going public via direct placement. The route could be particularly interesting for companies that have a well-known brand and can therefore do without a roadshow in the run-up to a financial market debut.
Potential contenders include ride-sharing services Uber and Lyft, which are already priced high in the private market. "This is a big moment for the venture capital industry," said financial investor Felix Capital partner Frederic Court. He said the direct placement will free up billions that will go back to investors, ultimately bringing more capital to Europe.
Possible roller coaster ride
Since Spotify does not have a traditional IPO, the company also has to do without the usual protection mechanisms of underwriting banks, which prevent the shares from crashing. Observers therefore expect the listing to become a roller coaster ride until the share price settles down. There was no issue price in advance - as is usually the case - for the company, which is valued at around 20 billion dollars. "The direct placement will save the company money, but it will likely lead to volatility when trading starts because the market has yet to find a tolerable price," wrote analyst Laith Khalaf of financial adviser Hargreaves Lansdown.
Spotify's IPO is groundbreaking
Recently, Facebook competitor Snap, HelloFresh competitor Blue Apron and cloud provider Dropbox have taken the traditional route to the stock market in the USA - with very different degrees of success. While Dropbox shares climbed more than 35 percent on the first day of trading, things don't look good at all for cooking box provider Blue Apron. Its stock market value has shrunk from what was once $2.5 billion to less than $400 million. Much like Snapchat parent Snap, Blue Apron failed to meet investors' lofty expectations. Whether more companies opt for a direct placement instead of an IPO in the future probably depends solely on Spotify. (SDA/reu)
