Spotify is done with its long-awaited “direct listing” experiment. The music streaming company went public without the IPO.
After completing its first trade halfway through the day at $165.90, Spotify fell to $149.01, 10% beneath the open. It was a down day on the stock market, but at a $26.5 billion market cap, it’s up from the private market trading that happened in the months leading up to the IPO.
The top end of that range, $132, was used as a “reference point,” valuing the company at $23.5 billion. Since there was no IPO price, that demarcation is being used to say that Spotify traded up about 13% on its first day.
Yet while it achieved a desirable market cap, some on Wall Street are puzzled as to why Spotify would want to go public without raising money.
One myth that’s been floating around is that Spotify did this to avoid paying bankers. In fact, they worked with Morgan Stanley, Goldman Sachs and Allen & Co. in the lead up to the debut.
They did not eliminate the investment banks, but they did manage to avoid the dreaded “lock-up” expiration, which is when most employees and insiders are allowed to sell shares. This is usually about six months after an IPO and it often puts downward pressure on the stock, in anticipation of the event.
Some are wondering if Spotify’s debut will be replicated in the future.
“The direct listing is really interesting as a potential roadmap for future companies because the price that Spotify now trades it as a real price without any of the distortions which come from a lockup or a banker-managed process,” said Chi-Hua Chen, managing partner at Goodwater Capital. Chen invested in Spotify when he was at Kleiner Perkins. He believes that “the price is as real an expression of the value of the company as possible, which makes it an interesting case study for future companies moving into the public markets.”
Apart from the change in process, this debut also felt different from IPOs because there was no celebration. There was no bell-ringing ceremony and no Spotify employees were present to cheer from the floor.
Outside the New York Stock Exchange, there was a Spotify banner to commemorate the event. And next to it, there was a Swiss flag meant to honor them. The only problem is, Spotify is Swedish.