Spotify has disrupted the way people consume music, and now the streaming platform will also be disrupting the stock market. It was announced yesterday via Reuters that Spotify could be the first major company to directly list itself on the New York Stock Exchange (“NYSE”) when it goes public later this year or early next year. According to Reuter’s sources, the company was most recently valued at $13 billion.
In a traditional Initial Public Offering (IPO), a company going public raises money by rolling out new shares to the market through an investment bank underwriter who sells and allocates those initial shares at a price based on investors’ responses. Being directly listed on the NYSE would provide investors with immediate access to purchasing existing shares of Spotify’s stock in the public marketplace, and would save Spotify from additional bank fees. As the first major company to carry out a direct listing on the NYSE, the success of Spotify’s IPO could change the way other major companies choose to take themselves public going forward. Pandora Media Inc. is the only other music streaming company that has gone public, and it’s shares are now selling below its initial public offering price.
What makes Spotify so attractive to investors is that the company profits from subscription fees instead of solely relying on advertising. Spotify currently has 50 million paying subscribers, which is roughly half of its user base. It also is estimated that Spotify has a 43% share of the music streaming market. They company was recently in the news for its licensing deal with Universal Music Group. Universal will only release new music to paying subscribers for the first two weeks, and it makes royalties dependent on the number of streams. This licensing agreement is groundbreaking for the music streaming industry, and time will tell if Spotify will strike up similar agreements with heavy hitters such as Warner Music Group and Sony.
Spotify has not publicly commented on the listing, but it is not often that the music industry and finance collide in such an impactful way. Investors and subscribers alike are curious to see what the outcome of Spotify’s listing will be.