After its first decade, Spotify has begun its new era as a public company with a successful IPO on day one that will increasingly focus attention on the majors’ potentially hugely lucrative stock holdings.
Spotify opened with a direct listing on the New York Stock Exchange on April 3, with shares closing at a valuation of $149.01. The streaming giant’s shares ended the day down more than 10% on their opening of $165.90, but still well up on the initial reference price of $132.
Based on the first day’s trading, the market valuation for the streaming giant is $26.5 billion (£18.8 billion). That’s slightly ahead of the widely predicted $25 billion (£17.8 billion) - and not too far off the market capitalisation of €27.1 billion (£23.6 billion) for Vivendi Universal.
Citadel Securities was appointed by Spotify as the market maker to set the opening price, with consultation from Morgan Stanley. Despite concerns about price volatility resulting from the direct listing, the only mishap on the day turned out to be the New York Stock Exchange mistakenly flying the Swiss flag rather than the Swedish flag to mark the debut by Spotify Technology SA.
When Spotify shares finally started trading at 5.43pm (GMT), amid a wild round of applause on Wall Street, Spotify’s stock officially went public, with 5.6 million shares exchanging hands at the opening price of $165.90 per share. Dealogic declared that the Swedish company was on track for the third-largest tech IPO ever. From there prices would slip 3% to around $160.75 before rising to $163. With just one hour left of trading, the stock value decreased to $150.
When we've got competition, it actually grows the market, because more people are now talking about streaming
In the event, only 3.1% of eligible shares were sold at the immediate launch of the IPO, which could yet mean further volatility if there are sudden movements in the market.
“Of course in coming months more Spotify stockholders and employees will opt to get off the sidelines and sell their stock,” wrote Bloomberg columnist Shira Ovide. “A truer picture will emerge of Spotify’s fair value, although it could be messy at times.”
A host of artists, labels and executives also greeted the news with a combination of intrigue and pessimism. You can read a round up of initial reactions here along with the views of financial analysts.
The looming question now is what the major and independent labels represented by Merlin – who have pledged to pass any windfalls on to rights-holders - do with their equity stakes. Two years ago, Warner Music Group was the first major to announce it would share any proceeds from the sale of Spotify stock with artists. Following the IPO, sources told Music Week that WMG is watching the situation and will make a decision on selling its holding based on how the stock performs.
WMG sources also disputed reports that its holding is as high as 4%
Sony Music Entertainment would not comment on whether it plans to sell its 5.71% stake - currently worth around $1.5 billion.
A spokesperson told Music Week: “Sony Music and The Orchard are committed to sharing with their artists and distributed labels any net gain they may realise from a sale of Sony Music’s equity stake in Spotify. This is consistent with our previously announced policy of sharing breakage and equity proceeds from digital catalog licenses with our artists and distributed labels.”
Universal and Merlin had not responded to Music Week’s request for comment by the deadline.
According to the Financial Times, CEO Daniel Ek and fellow co-founder Martin Lorentzon have no plans to sell their holdings.
"We are about twice the size of [Apple] so I think we've still got some room and I'm very happy with the growth that we're seeing in our business,” he said. "When you have something like music that billions of people around the world care about, you're never gonna be alone. This is too big and it matters for too many people. So what we've found is when we've got competition, it actually grows the market, because more people are now talking about streaming. It's easy to forget that just three years ago, even in the US, streaming wasn't really a thing - it was still downloading songs. So this helps educate the market, and that's equally true across the world.”
Ek also described how Taylor Swift visited Stockholm to discuss her new album, which belatedly appeared on the streaming platform. Swift has just released an exclusive video for Spotify.