April 2, 2018 / 5:25 PM / 3 months ago

Breakingviews - Spotify direct listing piles risks upon risks

NEW YORK (Reuters Breakingviews) - Spotify’s direct listing piles risks upon risks. The music-streaming service’s market debut was unusual already – but it comes as specific fears over Facebook and Amazon are spilling over into wider tech valuations.

Spotify CEO Daniel Ek speaks during a media event in New York, U.S., May 20, 2015. REUTERS/Shannon Stapleton/File Photo

On Tuesday the Swedish firm will allow current owners to sell stock directly to new investors. Traditionally, companies conducting initial public offerings ask investment bankers to play matchmaker, set an inaugural price, and buy shares to stabilize the stock if needed on the stock’s opening day. With Spotify, both the price and the number of shares are up for grabs. Almost all the shares could trade on day one – or very few could.

That raises the potential for the stock to whipsaw as it searches for a natural settling point. Meanwhile, the broader tech market is swinging. Facebook has lost nearly $90 billion in equity since mid-March after reports about leaked member data. Amazon is in the crosshairs of President Donald Trump who believes the e-commerce giant is ruining the United States Postal Service. Shares in Jeff Bezos’ firm fell some 6 percent on Monday.

Those alone shouldn’t trouble Spotify founder and Chief Executive Daniel Ek. But the wider unease might. Netflix, which like Spotify depends on subscriptions for revenue, declined some 5 percent on Monday.

Investors may still have an appetite for the new. Renaissance Capital figures the 44 IPOs in the United States during the first three months of 2018 made for the best quarter in three years by proceeds, raising nearly $16 billion. The technology sector raised over two times the amount of any other. Online-storage firm Dropbox is up some 40 percent since its public debut on March 23, even though it too has started to lose some ground.

It’s admirable that Ek is forgoing an IPO. By doing so he is allowing for his employees to sell shares without the constraints of a lockup period that can artificially prop up a company’s value. Instead Spotify is attempting to get at its true worth faster. The trouble is the market uncertainties are likely to add up to a heap of volatility.

Breakingviews

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