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Spotify Is Going Public, But Where's The IPO?

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Summary

  • Music-streaming company Spotify has announced that it is preparing to go public.
  • It’s choosing to do so in an unconventional way, via a direct listing.
  • There are several reasons the direct-listing approach can be attractive.

Music-streaming company Spotify (NYSE:SPOT) has announced that it is preparing to go public, sometime in March or April, only it’s choosing to do so in an unconventional way, via a direct listing.

Over the past decade, direct listings have been few and far between. There have been six of them on the Nasdaq since 2006 and Spotify’s would be the New York Stock Exchange’s (NYSE) first if the U.S. Securities and Exchange Commission (SEC) accepts the NYSE’s proposed rule changes that would allow direct listing.

What Is A Direct Listing?

In a direct listing, companies skip the typical initial public offering (IPO) process by listing shares directly on an exchange. The number of shares for sale is determined entirely by what current shareholders are willing to sell, also setting the price they’re willing to sell at. On the flip side, demand for shares is determined entirely by the quantity of shares new investors are willing to buy, and at the price they’re willing to pay.

So far, the majority of companies that have gone the direct listing route have been smaller companies and some real estate investment trusts. Spotify is unique in that it is far and away the largest company to pursue such a course. In mid-December, Reuters reported that Spotify was valued at about $19 billion based on the price of recent private transactions, putting it in the large cap bucket.

Regardless of the process to go public, once the shares start trading on the exchange, they’re still subject to the same requirements as every other company and could be delisted if they fail to maintain the exchange’s listing requirements. The companies also need to abide by the SEC’s rules and regulations.

Why Would A Company Choose A Direct Listing?

Despite their infrequent use, there are several reasons the

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