Spotify considers listing without I, P and O

Headphones are seen in front of a logo of online music streaming service Spotify in this illustration picture taken in Strasbourg, February 18, 2014. REUTERS/Christian Hartmann

NEW YORK (Reuters Breakingviews) - Spotify could be marching to the beat of its own IPO drummer. The $8.5 billion music-streaming service is considering listing its shares directly without raising any new capital, the Wall Street Journal has reported. It would be a departure from convention that doesn’t occur often for a reason.

Going public by any route is uncommon. Sums raised by new U.S. issues tumbled by half last year to the lowest in more than a decade, according to Thomson Reuters. Ample private funding and new rules under the JOBS Act enable the likes of Airbnb and Uber to steer clear of the market’s bright lights for longer.

Though Spotify is losing money – 173 million euros in 2015, the latest figures disclosed by its Luxembourg holding company – its cash needs may be getting less urgent. It just struck a new licensing deal with Universal Music which would lower Spotify’s onerous revenue share if it can attract sufficient new customers. Paying subscribers have nearly doubled since 2015 to exceed 50 million.

Its coffers should be relatively full. Spotify has raised over $1.5 billion over the last two years. Investors may be getting itchy, though. Terms of the convertible debt 11-year-old Spotify issued last year also put pressure on it to go public soon.

By simply taking shares to market without seeking new capital, Spotify would provide its backers with an easier way to sell while avoiding some of the traditional IPO rigmarole, including banking fees that can be as much as 7 percent of funds raised. The firm led by Daniel Ek easily meets the New York Stock Exchange criteria, too.

Spotify’s recognizable brand may be enough to overcome the lack of analyst coverage and liquidity. This route to market, however, doesn’t provide the broad institutional shareholder base achieved by an initial public offering and offers no proper valuation.

Freddie Mac listed directly in the 1980s to help its financial-industry backers get out and a handful of non-traded real-estate investment trusts have done so, too. Google’s unconventional Dutch auction in 2004 left a lot of money on the table, and is a big reason why no major tech outfit has followed the same blueprint. It seems a little pointless to take the I, P and O out of Spotify.


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