Much has been made of Spotify’s imminent IPO, but a new report suggests the streaming service is instead considering a different approach – through a direct listing on a US stock exchange.
The listing, which could happen as soon as September, would mean Spotify registers its shares straight onto the public market, rather than first having to sell them investors, according to the WSJ.
The downside for Daniel Ek: he won’t raise any new money from investors tempted by an attractive prospectus.
Instead, Spotify will offer shares for a price simply based on the supply and demand of a public exchange.
Due to market forces determining share price, a direct offering is said to be a risky approach – one which could result in a displeasing initial market cap.
However, the move would allow Spotify to save on the pricey underwriting fees associated with an IPO, said WSJ sources.
It would also avoid stock dilution (a decrease in percentages owned by existing investors) that comes with issuing new equity in a traditional IPO.
The news comes shortly after Universal Music Group officially signed a new, multi-year global licensing deal with Spotify – thought to be a vital step in the streaming company’s journey towards attempting an IPO.
UMG is believed to have agreed to lower the revenue share of Spotify payouts received by its recorded music operation, but has made sure it’s got some goodies in return – setting Spotify subscriber growth targets in exchange for margin relief.
In 2015, Spotify was valued at $8.5 billion.
Spotify’s last funding round was in March 2016 when raising $1bn via convertible debt from TPG and Dragoneer ($750m between them), plus clients of Goldman Sachs.
The $1bn investor group successfully fought for a 5% annual interest rate – which would increase by 1% every six months thereafter should Daniel Ek’s company fail to IPO.
In addition, they scored a 20% discount on IPO shares; a figure which would itself increase by 2.5% every extra six months after the first year.
Those terms are thought to require revision should the direct listing go ahead.
Music Business Worldwide