Spotify IPO

Spotify went public on 3 April, with the company valued at around $26.37 billion when the markets closed. But where next for Spotify?

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How to trade Spotify’s IPO

Now Spotify’s listing is complete, you can go long or short on its stock via CFD trading.

What happened when Spotify floated?

The streaming giant opened on the New York Stock Exchange (NYSE) at $165.90 – well above the $132 guide price which was based on recent private sales. 

However, shares fell throughout the day, closing around 10% lower at $149.01 for a market capitalisation of $26.37 billion. 

The day as a whole then was neither a complete disaster nor triumph; early buyers lost some money on paper but the company still ended the day above the guide price. 

Where will Spotify go next?

It may have a strong brand and a large user base, but the company is yet to turn a profit – with some questioning whether it ever will, given the size and cash reserves of competitors such as Apple (Apple Music) and Alphabet (Google Play Music).

One potential issue is that Spotify will now need to balance the interests of its shareholders, who may demand cost-cutting measures including better deals with record labels, while competing with cash-rich tech giants who can absorb losses on their services. Adding to the complexity is Spotify’s limited bargaining power – 85% of all music streamed on the platform in 2017 was produced by one of the ‘big three’ record labels (Universal, Sony Music and Warner Music), so the service is very much reliant on their content.

However, Spotify still has plenty to be optimistic about. It remains the largest streaming service and is well positioned to produce original music and help artists reach audiences directly – both of which could help insulate it from its competitors and reduce its reliance on record labels in the future.

Key Spotify facts

  • Spotify opened trading on 3 April at $165.90 per share, valuing the company at $29.5 billion

  • It ended its first day trading at $149.01, for a market capitalisation of $26.37 billion

  • Instead of a traditional IPO, Spotify listed directly, joining the New York Stock Exchange (NYSE) as SPOT

  • Key competitors include Apple (Apple Music) and Alphabet  (Google Play Music)

  • Before its flotation, Spotify disclosed revenues of €4.09 billion for 2017, up from €2.95 billion in 2016, with a €378 million operating loss in 2017, up from €349 million in 2016

  • As of last year, Spotify had 159 million monthly active users, and 71 million premium subscribers

  • It claims to have nearly twice as many premium subscribers as Apple Music

Spotify: an IPO or a direct listing?

Spotify didn’t apply for a traditional initial public offering, it chose to float via a direct listing. While the outcome for retail investors was largely the same – Spotify shares were made available to buy and sell on the NYSE – there are some important differences between the two.

The biggest of these is that no new shares were issued, so Spotify didn’t raise capital from the listing. Instead, existing shareholders were able to sell their shares to the public for the first time. That meant Spotify didn’t need to get a bank to underwrite its offering or undertake a lengthy roadshow, cutting down costs. It also meant that existing shareholders’ positions weren’t diluted.

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When did Spotify go public?

Spotify listed on the NYSE on 3 April 2018. It originally filed for an IPO in February 2018.

Who owns Spotify?

Daniel Ek and Martin Lorentzon founded Spotify in 2006, and still hold an 80.4% majority stake in the company. Ek is the current CEO and controls 37.3% of the voting power, with Lorentzon sitting on the board and controlling 43.1%. 

Their combined stake in Spotify’s tradable stock though, is 21.45% – using Spotify’s estimated valuation of $19.9 billion from late 2017, Ek and Lortentzon’s combined stock has a value of around $4.08 billion. 

Other major shareholders include Tencent (2.4%) and hedge fund Tiger Global (2.2%).

How does Spotify make money?

Spotify has two revenue streams: the monthly fee paid by its premium subscribers, and the fees that advertisers pay to appear on its non-premium services. 

The company has announced that it has 71 million premium subscribers out of 159 million total monthly active users. Those 71 million premium subscribers make up the vast majority of revenue: just 10% of the money Spotify made in 2017 came from advertising.

One thing to note about Spotify is that for the moment it doesn’t actually make any profit – in 2017, its operating loss was €378 billion. Much of that is down to the royalties it pays for its music, with almost 80% of the money coming in going straight out again.

A tech IPO that makes a loss isn’t particularly unusual, with Facebook, Twitter and Snapchat all arriving on the markets before they turned a profit. But Spotify’s road to profitability could be a key consideration in its early days on the markets.

How can I trade Spotify shares?

You can trade Spotify with a CFD trading account which enables you to speculate on price movements in either direction without needing to buy or sell the underlying shares. The profit or loss you make is dependent on the extent to which you can get your predictions right.

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