- Spotify filed the paperwork to list shares on the New York Stock Exchange.
- The company is planning to do a “Direct IPO” which bypasses the typical Wall Street process.
- Spotify is the largest music streaming service with 71 million paid suscribers, but rival Apple is catching up fast.
Spotify has filed paperwork for a direct public offering, a risky and unusual process to quickly list its shares as it races with Apple to become the de-facto standard in the fast growing music streaming business.
The 10-year-old Swedish company filed an F-1 prospectus with the SEC on Wednesday for the offering. Spotify, which is reportedly valued at $US19 billion in the private markets, plans to list shares on the New York Stock Exchange under the ticker “SPOT.”
Spotify pioneered the music streaming business, which has overtaken digital downloads, as well as the ravaged CD business, to become the largest segment of the music industry in the US.
With 71 million paid subscribers, Spotify is currently the world leader, but it is facing stiff competition from Apple, whose three-year old Apple Music service has already racked up 36 million subscribers. Google and Amazon are also pushing their own streaming music services.
That competition has forced Spotify to spend heavily on music licensing, to maintain a deep catalogue of music boasting 35 million tracks , as well as on marketing and R&D. The spending has resulted in hefty and growing losses. In 2017, Spotify said it had a net loss of €1.2 billion ($US1.5 billion USD), compared to a net loss of €539 million the year before.
The company’s revenue increased 39% year-on-year in 2017, totaling roughly €4.1 billion, or $US5 billion.
Warning: The stock could “decline significantly and rapidly”
Spotify is offering its shares directly to investors, bypassing the typical Wall Street process where banks are hired to find buyers for the shares. Its F-1 form pegged the IPO as a $US1 billion offering, though that figure is likely a placeholder number that could change as the offering gets closer.
The direct IPO means that Spotify will sell shares without a set price, without a set level of supply of shares, and without a lock-up on existing investors. And the lack of the so-called “bookbuilding” process typically handled by underwriters means that Spotify’s stock won’t have a safety net if investors turn sour on the company when the shares trade freely.
“The public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly,” Spotify warned in its prospectus.
11.4 billion “consumed hours”
In a letter to prospective shareholders, Spotify’s 35-year-old cofounder and CEO Daniel Ek described the company as a tool to connect creators and consumers across all genres, beyond simply music.
“We believe that these tools we’re building will go far beyond music, building bonds between creators and consumers across every genre and form,” Ek wrote, without providing specifics.
For now, Spotify’s bread and butter is streaming music, with subscribers in Europe and the US providing the brunt of its business.
In addition to its $US9.99 per month premium service, Spotify offers a free ad supported version that also contributes to its revenue. Spotify said it had 159 million active monthly users at the end of 2017.
Spotify’s users listened to roughly 11.4 billion hours of content during the fourth quarter, up sharply over the past couple of years.
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