Last week, The Wall Street Journal reported that the company could go public in an unprecedented transaction.
Let me explain what’s happening. And how it could create windfall profits for early investors.
The company is Spotify AB, the world’s leading streaming music subscription service.
Spotify IPO: A Different Animal
According to The Wall Street Journal, Spotify is considering a direct stock listing. That means that Spotify would go public WITHOUT investment bankers and WITHOUT raising money.
Billion-dollar IPOs are coming soon… and it all starts next week.
Fortune reports that Spotify could go public in a $10 billion deal. Shares are still PRIVATE.
Yet early investors can buy Pre-IPO shares BEFORE the company files with the S.E.C. Click here to discover how to grab a stake.
In a direct-offering Spotify IPO, the company would simply list its shares on the NYSE or NASDAQ and begin trading.
A direct offering has several benefits:
- Saves millions in underwriting fees
- Limits dilution for existing shareholders
- Avoids a first trading day “pop” in the share price
- No quiet period means company execs can talk publicly
The Journal reports, “If the company does list this way successfully, it could create a path for other highly valued technology companies with ready access to cash to quickly move into the public domain without using the typical IPO script.”
This would mean NO investment bankers. NO shares offered to their preferred clients. In fact, NO new shares offered at all.
How unusual is this?
“So rare that I have never taught direct listings when I teach about IPOs,” said Luke Taylor, a finance professor at the Wharton School of the University of Pennsylvania.
Technology companies and entrepreneurs HATE rules. And this may be another example of breaking with the status quo.
Who profits from the Spotify IPO plans? Likely the existing shareholders including founders, employees and early investors.
Spotify shares are currently PRIVATE. Try getting a stock quote, and you’ll quickly discover that you can’t simply buy them on the market.
Yet, using a secret and 100% legal loophole you can invest in Spotify pre-IPO shares.
This special class of shares is now available ̶ months before the Spotify IPO.
So, what exactly is Spotify?
This Online Music Company is Killing iTunes
Most startups hail from U.S. tech centers in Silicon Valley, Boston or New York City.
Yet Spotify was founded in Stockholm, Sweden, in 2006.
The company is disrupting the music business with a surprisingly simple offer:
Access unlimited amounts of music for just $9.99 per month. Never buy another iTunes album. Simply pay a monthly membership fee and listen to everything you want.
Thus far, Spotify has 100 million active users. That includes 50 million paying subscribers. Another 50 million agree to listen to commercials, instead of paying the subscription fee.
The U.S. is a huge market for Spotify. And the service is also available in another 59 countries.
Based on those numbers, Spotify is generating $6 billion in annual subscription revenues plus some extra cash from its advertising business.
Spotify has become the biggest music streaming service. Last December, Apple reported that it has 20 million streaming music members (also paying $10 per month).
The company is a well-regarded brand in the U.S. and around the world.
With a large reach and millions of avid users, Spotify should be able to generate sufficient interest in its stock.
Wall Street’s investment banks will feel snubbed if they miss out on millions in underwriting fees.
But in the end, their research analysts will still recommend their stock. Mutual funds and hedge funds will still buy the stock. And a few weeks after Spotify starts trading, everyone will forget that this was any different than other IPOs.
The Spotify IPO will be the biggest to hit the market since Snap (NYSE: SNAP).
I’ll be keeping a close eye on Spotify’s plans to go public. Stay tuned . . .