Spotify’s plans to go public without a traditional IPO were the subject of further speculation this weekend, with CNBC and the Financial Times both reporting on the plans.
They made the same claim: that Spotify is exploring a ‘direct listing’ on the NYSE rather than a traditional IPO. Morgan Stanley, Goldman Sachs and Allen & Co are advising the company, according to both reports.
CNBC’s report included an extra nugget: the claim that Spotify is now valued at $13bn, although the FT stuck with the $8.5bn from the streaming service’s last funding round in 2016.
CNBC did not provide further details on who’s assigning the $13bn valuation to Spotify beyond “sources”, while one of the FT’s sources told that paper that Spotify ‘does not feel it needs to raise new money’ but has yet to make a final decision on the listing plans.
Sources around Spotify have been trailing this strategy before. In April, the Wall Street Journal was briefed that “Spotify is seriously considering a direct listing, in which the company would simply register its shares on a public exchange and let them trade freely”, with the benefits of saving on underwriting fees, avoiding dilution of stock and making it easier for staff to sell their shares. It also warned that a direct listing can lead to more initial volatility in the stock price.
Influential VC Fred Wilson had warm words about such a strategy the same month. “We don’t need IPOs to raise money anymore. The private markets work great for that now. But we do need a way to allow small investors to own the stock and we need a way to give employees, former employees, early investors, etc liquidity,” blogged Wilson.
Plans for a direct listing would not remove the pressure on Spotify to finalise its licensing negotiations with Sony and Warner, but they may smooth its path to becoming a public company this side of Christmas or early in 2018.
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Isn’t this really about satisfying covenants from previous financing rounds which require a public listing for Spotify or give more shares to investors?