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Be wary of Spotify’s unusual IPO

Assif Shameen
Assif Shameen3/26/2018 08:00 AM GMT+08  • 10 min read
Be wary of Spotify’s unusual IPO
SINGAPORE (Mar 26): On April 3, giant music streaming firm Spotify Technology will list on the New York Stock Exchange. Don’t look for CEO Daniel Ek ringing the bell that morning from the narrow balcony overlooking the trading floor or patiently waiting
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SINGAPORE (Mar 26): On April 3, giant music streaming firm Spotify Technology will list on the New York Stock Exchange. Don’t look for CEO Daniel Ek ringing the bell that morning from the narrow balcony overlooking the trading floor or patiently waiting for an hour before the trading of the IPO shares actually begins once the mass of buy and sell orders have been carefully matched. Spotify executives will not be handing out souvenir baseball caps on the floor of the exchange or uncorking champagne bottles as Wall Street underwriters help the stock spike upwards. Indeed, Spotify will not even be offering any new shares to investors. Only the shares of existing shareholders, who by the way will not be constrained by a traditional “lock-up” period, will trade on listing day.

The Stockholm-based music streaming behemoth is going public through an unusual form of IPO called “direct public listing”. There is no IPO price or underwriter paid to “stabilise” the stock on the first day of listing. Gobal investment banks typically take 7% of the proceeds in fees of large tech IPOs. Spotify is saving on those expenses, although it will pay a small fee to Morgan Stanley for helping it in the listing process. Just as it helped revolutionise the music industry, Spotify, in its own way, is transforming mega tech IPOs, which might prompt tech unicorns to be more innovative in their approach to listing, bypassing Wall Street’s traditional ways.

Co-founded by Ek, now 35, and Martin Lorentzon, 49, in 2006, Spotify was launched in 2008 as a commercial music streaming service. It has 71 million paid subscribers and another 92 million free users in its ads-supported service. Apple, which eschews advertising, has 38 million paid subscribers for its Apple Music service (in addition to eight million on free trials) compared with Amazon Music Unlimited’s 16 million paid subscribers, Pandora Media’s 5.4 million and Google Play Music, which has less than five million. Apple, Spotify and Google charge US$9.99 ($13.14) a month for streaming music, while Amazon.com charges its Prime members US$7.99 monthly for music.

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