Spotify’s unusual route to becoming a public company is a test case for other multibillion-dollar tech companies that are looking to sell their shares but are not in need of cash.
On Tuesday, investors will be able to buy and sell shares in the Swedish music streaming service in the New York Stock Exchange’s first-ever direct floor listing.
This is without Spotify having hired investment banks as underwriters and undertaking an investor road show as is typical in a traditional initial public offering.
If it goes well, other highly valued tech firms are expected to pursue a listing in the future, and the likes of US ride-hailing companies Uber and Lyft could look to adopt a similar approach.
Wall Street banks will also be seeking feedback from investors on the day and are looking to come up with ways to make up at least part of the millions of dollars in potential lost underwriting fee revenue.
“Everybody is going to watch what will happen with Spotify,” said Columbia Law School professor John Coffee, who focuses on securities regulation.
Given the listing’s first-of-its-kind nature, observers will be watching to make sure Spotify’s public market valuation does not plunge below its previous private valuation and trading holds relatively steady.
Spotify can eschew a traditional IPO because it does not require fresh capital and is a popular consumer brand about which the investors do not need educating through a road show.
“This is a big moment for the venture capital industry,” said Felix Capital managing partner Frederic Court, a European venture capitalist. “It will enable billions to be returned back to investors, which will release more capital into Europe.”
Spotify’s direct listing also follows a mixed bag of recent IPOs by some of the so-called tech unicorns that had been worth at least $1 billion.
Snapchat owner Snap and meal-kit subscription company Blue Apron Holdings have failed to live up to their IPO valuations once they started trading in public markets.
In Blue Apron’s case, its market capitalisation has fallen from a peak of more than $2.5bn to less than $400 million.
But in Dropbox's March shares in the cloud-based file storage company surged more than 35 per cent on their first day of trading, evidence the traditional IPO route can still be a success for start-ups.
“Both Dropbox and Spotify are very prominent unicorns. Those are two paths,” Prof Coffee said.
Lyft said in December its latest round of funding brought its valuation to $11.5bn. Uber’s latest valuation has been pegged at more than $70bn.
Loss-making Spotify, which has prioritised rapid growth over profit and whose closest rival is Apple Music, launched in 2008 and had 71 million subscribers at the end of 2017.
Run by co-founder Daniel Ek, Spotify was valued at about $20bin based on private stock transactions in February, according to its filing for the listing.
