Spotify plans direct listing on the New York Stock Exchange
The owner of the largest paid music service in the world, Spotify, plans an initial public offering (IPO) on the New York Stock Exchange in the beginning of the year. In this way, it jumps over the traditional IPO in exchange for something called direct listing. The debut will check whether investors are willing to buy shares of companies in the music industry, which struggled with huge problems only a few years ago.
The sales in the music industry have increased over the last three consecutive years, thanks to the many consumers who pay to listen to Spotify and Apple Music. Their spending has exceeded the contraction of album sales in physical and online stores like iTunes, which allowed businesses to prosper after years of decline. The analysts predict revenue may increase more than twice over the next decade.
The investors have several direct opportunities to take advantage of potential growth. All three major music companies are part of larger companies. Vivendi holds Universal Music, while Sony Music is part of the Japanese media and technology conglomerate. The billionaire Leonard Blavatnik owns Warner Music. At the same time, music represents a small share of the business of some of the world’s largest retailers – Apple and Wal-Mart Stores.
Spotify has created the world’s most popular on-demand music service, outpacing major technology players like Apple. The company already has over 60 million subscribers and is trying to prove that a music service can prosper without having to be a tool for selling phones or other products.
The renewed optimism about the future of the music business has promoted the value of catalogs in recent years. In November, Kobalt Capital raised 600 million USD to buy music rights and decided to acquire Song Music Publishing for about 150 million USD. Imagem, which holds about 250,000 songs in groups like Daft Punk and Pink Floyd, was sold to Concord Bicycle Music in a deal worth billions of dollars. The French media company Vivendi headed for Universal Music’s primary public offering, the largest music company in the world, to test investors’ enthusiasm.
So far, Spotify is the biggest opportunity. The company was estimated at 8.5 billion USD, when it raised capital in March 2016, rising to over 15 billion USD after that.
Direct listing, which is more typical for smaller companies, is risky. Spotify is not trying to raise capital. It is heading for listing so that current investors can start selling their shares.
Spotify believes it is well known, and investors can look at its limited financial results that have been publicly announced. Still, the company is not a sure bet. The growth of the music industry may slow down and the company can not predict how many people in the world will pay for the service.
Online radio service Pandora Media became public in June 2011 at a price of 16 USD per share within a traditional IPO. The stock reached a peak of more than 40 USD in March 2014, but they are now traded at less than 5 USD following financial loss and management problems.
Spotify lost 601 million USD in 2016. But after that, it managed to negotiate new agreements with major music companies to cut costs. These deals have improved its margins.