Spotify Shares Skyrocket 13 percent in Wall Street Debut
Spotify shares skyrocketed 13% in its successful Wall Street debut on Tuesday, finishing with a valuation of $26.5 billion.
In one of the biggest public offerings ever in the technology sector, Spotify topped the market capitalization of other high-profile market entrants. These include Twitter, Snapchat parent Snap, and Dropbox.
Spotify shares have an opening price of $165.90, but fell more than 10% to close at $149.01. Even so, the closing price was still higher than expected.
The $149.01 closing price remained well above Monday’s reference price of $132. Though it was under the day’s high of $169 apiece.
Further, the music streaming service is trading on the New York Stock Exchange under the ticker symbol SPOT. Unlike any traditional IPO, Spotify conducted a direct listing. That means there were no banks underwrote the offering and no price was set ahead of the debut.
The NYSE set a reference price of $132 on Monday based on previous trades on private markets. However, the publicly listed price was based on investor demand.
The direct listing was seen as a test case for other companies tempted to list without selling new shares. It was also for bankers that could lose out on millions of dollars in underwriting fees for future initial public offerings.
“It’s fair market price. It’s not manipulated or set by any puts and takes by banks or institutional investors,” said Chi-Hua Chien, an early investor in Spotify who is now at venture capital firm Goodwater Capital.
Spotify Shares made billions for CEO Daniel Ek
Meanwhile, Spotify CEO and founder Daniel Ek came as the day’s biggest winner. His 27% stake in the Swedish company is now worth $7.4 billion.
“Spotify is not raising capital and our shareholders and employees have been free to buy and sell our stock for years,” Ek wrote in a blog post. “So while [Tuesday] puts us on a bigger stage, it doesn’t change who we are, what we are about, or how we operate.”
Moreover, the company’s CEO characterized Spotify’s manner of going public as perfectly in keeping with the company’s self-image as a disrupter.
“Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment,” Ek said in a statement. “Normally, companies don’t pursue a direct listing.”
“While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company.”
The music streaming business launched 12 years ago as a free-to-use service, and advertising funded it. Today, Spotify now has 157 million customers. It has managed to convert 71 million of those into paying users of its premium services. It positioned itself far ahead of its closest competitor, Apple Music, with just 36 million subscribers.
However, Spotify never made a profit, making it harder for potential investors to value the firm. The company generated about $5 billion in revenue last year, with a $1.47 billion loss.
Goldman Sachs, Morgan Stanley, and Allen & Co. advised Spotify on the offering.
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