Swedish music streaming giant Spotify makes going public official.
Rumours around Spotify going public have been floating around for several months now, coming to a head in August 2017 when the company struck a deal with Warner Music.
In January, Spotify filed paperwork that said it was considering a direct listing in the first half of 2018, something that looks set to occur in the very near future.
According to The New York Times, Spotify filed a share sale prospectus for the New York Stock Exchange on 28 February, meaning the world can expect one of the most notable tech firms of recent times to go public rather soon.
Direct listing ahead
As was previously predicted, Spotify will pursue a direct listing as opposed to a traditional stock market float, meaning no new stocks will be issued, but investors can trade their shares on the open market. This could prove risky for the company, as the traditional management processes carried out by Wall Street institutions is eschewed, creating potential for volatility once it is listed.
Spotify is well aware of the risks it’s taking, as it explained in a statement to the US Securities and Exchange Commission (SEC): “The public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly.”
There will be no opening share price and no roadshow, rather an ‘investor day’ to educate possible buyers, and the only Spotify owner that must hold shares for three years from the listing date is Tencent. The company could be valued between $6.3bn to more than $23bn based on prices shared.
Huge ambitions for cultural change
Spotify has lofty goals for how it will shape the future of the music industry and the wider culture around it, saying in a statement that it wanted to “unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art, and billions of fans the opportunity to enjoy and be inspired by these creators”.
CEO of Spotify, Daniel Ek, promised to “democratise the industry and connect all of us, across the world, in a shared culture that expands our horizons”.
Ek continued: “This is the future we envision; where artists cross genres and cultural boundaries, creating ideas that propel society forward; where fans can discover something they never would have otherwise; where we’re all part of a global network, building new connections, sharing new ideas, across cultures.”
Competition is fierce
Spotify is not without competition from companies such as Apple, Google and Amazon, and those three all have their hardware interests as well as streaming locked down. The company noted the heavy-handed (in its view) control that Apple and Google have over it, with both companies taking revenue from Spotify thanks to in-app payments on iOS and Android.
The algorithm is the key
Spotify’s key USP is its algorithmic playlist technology and the company said it would continue to make major investments in such innovations in order to set it apart from the rest.
Artists may not be celebrating
Although Spotify has been credited with revitalising the music industry in certain respects, songwriters and artists have often been critical of the royalty payout scheme, saying they are undervalued and therefore underpaid.
DJ and founder of music platform Choon, Gareth Emery, said he is not convinced that artists benefit. “Spotify has always been run for the benefit of the major record labels, all of which are shareholders, while artists get crumbs from the table.
“The whole system is cloaked in secrecy; nobody knows how much they’re going to get paid or when. It can take over a year to get paid for a stream, and up to two years. Even with over a million listeners, and tens of millions of streams, I couldn’t rely on Spotify for an income – so it blows my mind how smaller artists are supposed to manage.”
A major warning
According to MarketWatch, the company’s SEC filing “identified a material weakness in our [Spotify’s] internal control over financial reporting relating to inadequate financial statement preparation and review procedures”.
This basically means that problems with the company’s internal controls stem from difficulties in paying royalties to artists, and it said it could either overpay or underpay royalties due to copyright owners.
Not the only major IPO of late
Cloud storage player Dropbox officially filed for its IPO at the end of last week and it estimated it would seek to raise $500m in the offering, although that figure may be updated in later filings.
Dropbox, which was founded in 2007, plans to list under the ticker symbol ‘DBX’ and Goldman Sachs is one of 12 banks named as underwriters.
In its filing, the company revealed it generated $1.1bn in revenue during 2017, up from $845m the year before. Dropbox also plans to boost its R&D expenses and hire new engineering and product design heads to fend off competitors.
Spotify app. Image: Tero Vesalainen/Shutterstock