It’s Go Time For Spotify’s IPO
Later this morning Spotify’s stock will be available for sale on the NYSE for the first time ever. But this isn’t the usual go public moment of a traditional IPO. Instead Spotify will be attempting the largest ever “direct list IPO”, which circumvents the usual investment bank underwriting and lets individual equity holders start selling their vested stock at the opening bell.
As a result of their direct listing all eyes will be on Spotify to see what happens with its share price. Originally the market makers for the stock (Morgan Stanley and Citadel), expected to open trading in the $90-95 range. But rumored pre-IPO trading last week went as high as $130-140. On the other hand, with zero institutional buying to benchmark the stock price it could also plummet. So get ready for Mr. Toad’s Wild Ride.
Besides seeing where Spotify’s stock prices out at there are two other peculiarities to watch for. First, the direct listing won’t be injecting any new capital into the company. Considering Spotify’s had an operating loss of almost a billion dollars between 2016-2017 you’d think they’d need some fresh cash, but that won’t be coming any time soon. The other issue is the broader ramification their direct listing could have on all future IPOs. Since underwriting investment banks usually charge 2%-6% of a company’s initial market cap for traditional IPOs, there’s a huge cost savings if you can bypass their system. So I’m sure there will be many nervous Wall Streeters watching this one.