Fundings and Exits

Spotify opens at $165.90, valuing company at almost $30 billion


Spotify opened on the New York Stock Exchange at $165.90, giving the company a market value of $29.5 billion.

The first trade didn’t happen until 12:45pm Eastern. This is halfway through the trading day, and a record for the latest opening time for a public debut.

Shortly after the open, shares fell to a little above $160.

The digital music company isn’t selling its shares on the stock market, meaning the company isn’t raising any money today. Instead, the event known as a “direct listing,” is a collection of transactions from existing shareholders (like employees and investors) selling shares directly to stock market investors. It took a while for the market makers to sort this out.

Spotify is basically trying to recreate the secondary market activity that happened before it went public.  The company says that in 2018, shares traded on the private markets between $90 and $132.50. Since Spotify didn’t do an IPO, it set a “reference price” of $132 per share, which would have given the company a valuation of $23.5 billion.

Unlike a traditional IPO where employees don’t sell shares for months, known as a “lock-up,” Spotify insiders are already allowed to sell.

If few people opt to sell, it will drive share prices up, because of limited supply. If a lot of insiders sell, the reverse could happen, if investor demand doesn’t meet it. This may lead to increased volatility in the first few days or weeks of trading.

In the long-run, Spotify’s performance in the stock market will largely depend on its business performance and outlook.

Some investors are concerned that Spotify will run the course of competitor Pandora, which has struggled as a public company, partly due to hefty artist fees. Others argue that Spotify could be viewed as a Netflix, which has been successful in entertainment licensing agreements.

It’s certainly a big and growing business. The company says it is present in 61 countries and its platform includes 159 million monthly active users and 71 million premium subscribers.

Spotify had 4.09 billion Euros in revenue last year (or close to $5 billion), compared to 2.95 billion Euros (about $3.6 billion) the year before. 2015 saw 1.94 billion Euros in revenue (about $2.38 billion).

Losses for last year were 1.2 billion Euros ($1.47 billion), which compares to 539 million Euros ($661 million) the year before.

Spotify previously raised about $2.7 billion in both debt and equity financing. Tencent, Tiger Global, Sony Music and Technology Crossover Ventures (TCV) are amongst its largest shareholders.

CEO and co-founder Daniel Ek has voting power that represents 23.8% of the company. Yet some of this voting power is on behalf of shares owned by Tiger, TME Hong Kong and Image Frame. Ek owns closer to 9% of the business.

Martin Lorentzon, who co-founded Spotify, owns 12.4%.

 



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