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Streaming service Spotify will hold a direct placement of shares instead of IPO



In early April, the popular streaming service Spotify will be listed on the stock exchange. The company plans to raise $ 1 billion, however, instead of the traditional IPO will hold a direct placement of shares. This way of listing may be more convenient from a business point of view, but it carries many more possible risks. About why Spotify decided to go to the stock exchange exactly this way, we will tell in our new topic.

What is the direct placement of shares different from the IPO


When conducting a traditional IPO, companies use the services of intermediaries, the so-called underwriters . These are financial organizations that help determine the initial bid price, work on the documentation and monitor compliance with regulatory requirements, as well as buy out the company's shares, in order to redistribute them for sale to various investors. Typically, underwriters charge from 2% to 8% for their services. That is, a significant amount of funds raised through an IPO goes to intermediaries.
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But for companies that do not want to spend money on attracting underwriters, there is another, more economical way - direct listing (DLP). In this case, investors, promoters, or even employees who own shares of a company sell them directly. At the same time, the company does not issue new shares and avoids the blocking period. The disadvantage of this method of placement is that the company loses the guarantee of the sale of shares and all related operations, it also needs to be carried out independently.

Why Spotify makes a direct listing


According to Jorgen Parson (Par-Jorgen Parson) - the first investor of Spotify, who is familiar with the issue, the company abandoned the traditional IPO, as it believes that the rules for its conduct, established in 1930, are outdated. In particular, they did not want to resort to the services of intermediaries, who often do not even understand the essence of the process. In addition, Spotify did not want to raise capital and pay out hundreds of millions of dollars for underwriting, which they, in fact, do not need.

The creator of the service for the sale and purchase of Stockpile shares, analyzed the actions of users and came to the conclusion that the offers of Spotify and Dropbox are very interesting for young millennial investors, as they regularly use these products.

Since large technology IPOs are rarely held, Spotify has a good chance to successfully complete it. In this case, other technology companies that want to go public will understand that alternative IPOs can work quite well.

What is the market position of Spotify now?


Spotify has already announced that potential investors should not expect low stock price volatility, it may fall sharply or, on the contrary, increase. But serious fluctuations can still be avoided if shareholders do not actively sell shares.

The stock price of Spotify varies greatly. Thus, in 2017, the company's value ranged from $ 6.3 billion to $ 23 billion, and after announcing plans to enter the public market, the price of shares rose by 25%. Some experts expect the Spotify IPO to be one of the five largest technology placements.

At the moment, Spotify is the most popular streaming service; over 70 million users subscribed to it, which is more than twice as large as Apple Music. However, the company still incurs losses due to problems with the payment of royalties. In 2017, Spotify went to minus $ 1.5 billion due to large claims for unpaid fees to copyright holders. The company's management hopes that the listing will help to cope with the situation and cover the losses.

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Source: https://habr.com/ru/post/352346/

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