Commentary

The NYSE Bell Rings For Spotify Today But The Tone Is Different

Spotify takes to the main financial stage this morning as investors will be able to directly buy and sell shares in the Stockholm, Sweden-based company on the New York Stock Exchange. It’s the first time for such a performance, and there’s bit of jittery anticipation in the air.

“The music-streaming company has warned the process, called a direct listing, could result in greater volatility on the first day of trading than in a typical IPO. In part, that is because there isn’t any bank to act as a ‘stabilizing agent’ and prop up the stock if it plunges. On the other hand, Spotify’s stock price could surge if its well-known brand name triggers a deluge of buying interest,” write  Alexander Osipovich and Maureen Farrell for the Wall Street Journal.

Spotify isn’t looking get any dollars for its coffers; it’s just matching early investors with those who’d like to get in on the action.

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“If successful, Spotify could become a roadmap for the array of multibillion-dollar tech companies investors are currently hoping will go public soon, including Airbnb, Lyft and Uber. ‘It opens the door to any unicorn out there that focuses on the consumer,’ Nicholas Colas, cofounder of DataTrek Research, tells the Washington Post’s Renae Merle and Hamza Shaban.

“Spotify has said it chose a direct listing because it doesn’t need to raise more money. It also says the process is fairer because it puts large and small investors on a level playing field. In a normal IPO, the underwriting banks can allocate shares to favored clients ahead of the first trade, letting them benefit from any potential ‘pop' in the stock price,” the WSJ’s Osipovich and Farrell explain.

Spotify is unarguably the biggest and best-known of the streaming services that have transformed the music business.

“What was once an small upstart Swedish music platform has grown rapidly in recent years, adding millions of users to its free-to-use ad-funded service, and converting many of them to its more lucrative subscription service.  It is now the global leader among music streaming companies, boasting twice as many [paying customers] as runner-up Apple,” the BBC points out.

“[Daniel] Ek, 35, started Spotify in 2006 because he thought he could stamp out the piracy that had ravaged the music business. He was right,” Bloomberg’s Lucas Shaw wrote in a meaty feature about the upcoming IPO a couple of weeks ago. “Total global music sales have grown three straight years after a 15-year decline. More than 70 million people now pay Spotify an average of about $5 a month to access 35 million songs, plus playlists and podcasts. In private transactions, investors have valued the company at more than $20 billion.…

“There’s only one small flaw in the business model: Spotify doesn’t make any money,” Shaw continues. 

And, to be sure, it faces potentially formidable competition.

“Spotify's rivals are the biggest companies in the world with bottomless pockets, and they are using music as a way to sell their core products, not as a business proposition in itself. They could offer the record labels more money than Spotify can afford to pay,” MIDia Research’s Mark Mulligan tells the BBC.

“That would be my biggest worry if I were Daniel Ek,” Mulligan says, referring to the threat not only of Apple but also of Amazon, Google “and possibly even Facebook.” 

But at least for now, Spotify is No. 1 on the charts, as WABC’s Cousin Brucie used to tell us.

“Spotify’s early lead in music streaming has drawn comparisons to Netflix, which built upon its pioneering role in DVD-by-mail rentals and then video streaming to create a hugely successful, subscription-driven franchise that has produced spectacular returns for the company’s investors,” points out the AP’s Michael Liedtke.

“The similarities here, we believe, are much greater than the differences,” RBC Capital Markets analyst Mark Mahaney wrote recently, Liedtke reports.

In a letter posted on the Spotify website yesterday, Ek again explained “why we are doing things a little differently.”

“Normally, companies ring bells. Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. 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. As I mentioned during our Investor Day, our focus isn’t on the initial splash. Instead, we will be working on trying to build, plan, and imagine for the long term.”

He ends by cadging a few business precepts — “harder, better, faster, stronger” — from an unusual source of business acumen, Daft Punk.

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