Spotify IPO: Music-streaming startup hopes stock offering is a smash hit

Spotify IPO: Music-streaming startup hopes stock offering is a smash hit

Spotify, which was founded a decade ago, is the world's largest music streaming service and has more than 71 million subscribers.

With shares trading at their current level, Spotify has an enterprise value - which takes into account cash and debt on the balance sheet - of about five times its 2017 revenue of $5 billion. Spotify has a unique case due to its stock structure. It's a less expensive alternative to an IPO where the business sells shares directly to the public without any intermediaries, but it also means drawbacks like no deal support from the bankers.

The Swedish company began trading at an opening price of $165.90 per share, almost 26 per cent above the reference price, before slipping back a little. Launched in 2008, the company claims to have almost 160 million monthly active users, across dozens of countries.

Spotify is focused on building its subscriber base. It's using a "direct listing" on the New York Stock Exchange that will allow the company's early investors and employees to sell as many shares as they want whenever they want.

Where will the Spotify stock symbol open at? "Even though Spotify's scale is about twice that of Apple Music, Apple has a huge ecosystem of products to market to".

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"One of the things that is driving a lot of the uncertainty, this range of valuations, is that the company is highly unprofitable, has a lot of major competitors and has few direct public peers", Matthew Kennedy, an analyst at IPO research provider Renaissance Capital, told CBS Moneywatch. Instead of paying more than $65 million in fees to Wall Street investment banks, Spotify will likely pay half as much, market analysts said.

The company is going public through a direct listing on the NYSE, skirting the initial public offering (IPO) model that most companies pursue.

Ek said his company made a decision to skip the IPO phase because he wasn't interested in "the pomp and circumstance". "Spotify has been the driving force in nothing less than a turnaround in the United States recorded music industry". Instead, it is selling shares now help by its private investors and although this may save them some money, it ultimately makes the entire process volatile. And for its IPO, it opted for an unconventional "direct listing", bypassing Wall Street firms. Spotify subscriptions, meanwhile, are growing by an average of 2 percent per month.

"While this is obviously a big day and I'm very proud of my employees, I really just feel like we're in the early days, not celebrating the end days as so many other companies are doing", Ek said.

"In normal IPOs, the underwriters stabilize the price - they put a floor under the price below which the stock price won't fall, because the underwriters will buy it at that price".

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