Spotify goes to non-IPO: what does this mean?
At the end of February, the largest streaming service in the world, Spotify, filed an IPO application. Bidding will be open on April 3rd. The company aims to attract $ 1 billion. Spotify’s entry into the public market did not come as a surprise, but the way of raising funds could surprise analysts.
The company's transition to public status is already called "non-IPO."
What this means and how it will affect subscribers and shareholders - we will discuss below.
')
Photo downloadsource.fr / CC
Now Spotify is a private company, its shares are owned by a limited circle of people. The largest shareholders of the service are its founders - Daniel Ek (Ek Ek) and Martin Lorentzon (Martin Lorentzon).
In addition, among the shareholders is Chinese company Tancent, with which Spotify exchanged shares in December; Tiger Globe, one of the largest hedge funds in the world; the three major US recording companies are Sony Music Entertainment (SME), Universal Music Group (UMG) and Warner Music Group (WMG); venture fund Technology Crossover Ventures and a number of other individuals and legal entities. According to the Billboard publication, against the background of news about the upcoming trading, stocks have risen by 25% over the past three months.
An IPO allows companies to sell their shares in public and attract funds from a wide range of investors. As a rule, an investment bank participates in the initial public offering of companies, for example, Morgan Stanley - it organizes an IPO. Such a bank is called an underwriter. It attracts major investors, acts as a guarantor for the placement of securities, for which it receives remuneration from the issuer.
Traditional IPO has an alternative - direct listing . This is a simplified and less expensive procedure for entering the stock exchange for startups without an underwriter. This unusual way to become a public company and chose the leadership of Spotify. Shares of the company will offer investors directly. At the same time, Spotify will not actually issue new shares. Instead, the company will allow shares on investors and employees on the New York Stock Exchange.
Banks will not attract potential buyers of shares. However, investment organizations Morgan Stanley, Goldman Sachs and Allen & Co will advise the project. A direct listing also means that Spotify will sell shares without a fixed initial price (underwriters are responsible for it in the case of a “classic IPO”).
Photo Pxhere / CC
The main disadvantage of a direct listing is the lack of support or guarantee of repurchase of shares from large investors. In the traditional IPO, banks organize the attraction of the main pool of buyers, control the volatility of the stock price during and after the listing - in other words, they do not allow an IPO to fail.
Spotify has already warned that trading "may be unstable," and the stock price may "drop significantly and quickly." Underwriters insure against such uncertainty at public tenders, buying up shares and not letting them pay a heavy price. On the other hand, there is no guarantee that existing shareholders will start selling their shares, but will not want to hold them - this can save Spotify shares from a sharp fall without the help of an underwriter.
The main advantage of direct listing is saving . Banks receive money as consultants, and not as organizers of trading - for a company such an IPO format turns out to be much cheaper.
The bidding is expected to open at the end of March or in April and is predicted to be the largest technology company IPO this year. At the beginning of March, the value of the company is estimated at $ 23 billion.
The business model of the service is based on paid subscriptions - they bring the company the main profit. Today, Spotify has 71 million paid subscribers with a monthly growth rate of 2%. This is twice as much as the nearest competitor of the service - Apple Music. Thanks to this, for the third year in a row, Spotify has managed to increase revenue. In 2015, it was $ 2.37 billion, in 2016 - $ 3.6 billion and $ 4.99 billion - in 2017.
Despite the successes, Spotify ended 2017 at a loss of $ 1.5 billion. I remember the story of another long-running music startup - SoundCloud, which almost went bankrupt last year because of a series of losses. Because of this, by the way, he could become the property of Spotify, but the deal did not take place.
By the way, another similarity of companies - common problems with the payment of royalties. For streaming the streaming service is obliged to deduct royalties to the holders of copyright and exclusive rights - artists and labels. As of December 2017, the company paid $ 9.76 billion in royalties, but this did not save Spotify from large claims.
In 2016, the company had to transfer $ 21 million to the National Association of Music Publishers for unpaid royalties. In 2017, the service was forced to pay over $ 48 million to resolve a similar dispute with several small publishers. Earlier this year, Spotify was sued for copyright infringement of $ 1.6 billion.
In addition, in January, the US Copyright Council decided to increase the amount of royalties, and over the next five years, the amount of deductions from the streaming services will grow by 44%. All this is noted in the “Risk Factors” section of the company's IPO application.
After 10 years of existence, Spotify is still at the growth stage, but external factors threaten the company's business model. Therefore, a direct listing can be a way out for a service that wants to avoid the fate of SoundCloud and cover its losses.
The entry of Spotify on the exchange will affect not only the company and its shareholders, but also those market participants who do not have a direct relationship to the service. First of all, these are traders - the forecast that Spotify shares can make sharp jumps attracts them with the opportunity to earn money.
Record companies and artists can also benefit from the upcoming auction. The three largest labels - UMG, SME, WMG - 5% of Spotify shares . And they all plan to share the proceeds from the sale of the company's shares with their artists.
Spotify trades have already indirectly affected ordinary listeners. In March, it became known that the service began to combat pirated applications that allow you to listen to music for free and without advertising. The company threatened to block users of illegal applications that help circumvent the limitations of the service. This step is associated with the preparation for trading - the company needs to convince shareholders of the absence of any problems.
Spotify's direct listing will be closely watched by other technology companies preparing for an IPO. The future of this model depends on the success or failure of unusual trades - it will confirm either its efficiency or market concerns.
By the way, Spotify is not the only example of a music project entering the stock exchange. For example, a company owning the rights to Eminem’s tracks recently appeared on a mini-IPO, and the singer’s royalties became analogs of the shares (we told about this case in more detail here ).
Announcing the date and details of the upcoming auction, the head of the service Daniel Eck also mentioned that Spotify entered new markets - therefore, in the near future, the service will not only hold an IPO, but will also be available in India, South Africa and Russia .
Interesting posts on the topic - in our "World Hi-Fi":
The company's transition to public status is already called "non-IPO."
What this means and how it will affect subscribers and shareholders - we will discuss below.
')
Photo downloadsource.fr / CC
IPO without IPO
Now Spotify is a private company, its shares are owned by a limited circle of people. The largest shareholders of the service are its founders - Daniel Ek (Ek Ek) and Martin Lorentzon (Martin Lorentzon).
In addition, among the shareholders is Chinese company Tancent, with which Spotify exchanged shares in December; Tiger Globe, one of the largest hedge funds in the world; the three major US recording companies are Sony Music Entertainment (SME), Universal Music Group (UMG) and Warner Music Group (WMG); venture fund Technology Crossover Ventures and a number of other individuals and legal entities. According to the Billboard publication, against the background of news about the upcoming trading, stocks have risen by 25% over the past three months.
An IPO allows companies to sell their shares in public and attract funds from a wide range of investors. As a rule, an investment bank participates in the initial public offering of companies, for example, Morgan Stanley - it organizes an IPO. Such a bank is called an underwriter. It attracts major investors, acts as a guarantor for the placement of securities, for which it receives remuneration from the issuer.
Traditional IPO has an alternative - direct listing . This is a simplified and less expensive procedure for entering the stock exchange for startups without an underwriter. This unusual way to become a public company and chose the leadership of Spotify. Shares of the company will offer investors directly. At the same time, Spotify will not actually issue new shares. Instead, the company will allow shares on investors and employees on the New York Stock Exchange.
Banks will not attract potential buyers of shares. However, investment organizations Morgan Stanley, Goldman Sachs and Allen & Co will advise the project. A direct listing also means that Spotify will sell shares without a fixed initial price (underwriters are responsible for it in the case of a “classic IPO”).
Photo Pxhere / CC
The main disadvantage of a direct listing is the lack of support or guarantee of repurchase of shares from large investors. In the traditional IPO, banks organize the attraction of the main pool of buyers, control the volatility of the stock price during and after the listing - in other words, they do not allow an IPO to fail.
Spotify has already warned that trading "may be unstable," and the stock price may "drop significantly and quickly." Underwriters insure against such uncertainty at public tenders, buying up shares and not letting them pay a heavy price. On the other hand, there is no guarantee that existing shareholders will start selling their shares, but will not want to hold them - this can save Spotify shares from a sharp fall without the help of an underwriter.
The main advantage of direct listing is saving . Banks receive money as consultants, and not as organizers of trading - for a company such an IPO format turns out to be much cheaper.
The bidding is expected to open at the end of March or in April and is predicted to be the largest technology company IPO this year. At the beginning of March, the value of the company is estimated at $ 23 billion.
Why Spotify publicity
The business model of the service is based on paid subscriptions - they bring the company the main profit. Today, Spotify has 71 million paid subscribers with a monthly growth rate of 2%. This is twice as much as the nearest competitor of the service - Apple Music. Thanks to this, for the third year in a row, Spotify has managed to increase revenue. In 2015, it was $ 2.37 billion, in 2016 - $ 3.6 billion and $ 4.99 billion - in 2017.
Despite the successes, Spotify ended 2017 at a loss of $ 1.5 billion. I remember the story of another long-running music startup - SoundCloud, which almost went bankrupt last year because of a series of losses. Because of this, by the way, he could become the property of Spotify, but the deal did not take place.
By the way, another similarity of companies - common problems with the payment of royalties. For streaming the streaming service is obliged to deduct royalties to the holders of copyright and exclusive rights - artists and labels. As of December 2017, the company paid $ 9.76 billion in royalties, but this did not save Spotify from large claims.
In 2016, the company had to transfer $ 21 million to the National Association of Music Publishers for unpaid royalties. In 2017, the service was forced to pay over $ 48 million to resolve a similar dispute with several small publishers. Earlier this year, Spotify was sued for copyright infringement of $ 1.6 billion.
In addition, in January, the US Copyright Council decided to increase the amount of royalties, and over the next five years, the amount of deductions from the streaming services will grow by 44%. All this is noted in the “Risk Factors” section of the company's IPO application.
After 10 years of existence, Spotify is still at the growth stage, but external factors threaten the company's business model. Therefore, a direct listing can be a way out for a service that wants to avoid the fate of SoundCloud and cover its losses.
Who will be affected by the non-IPO Spotify
The entry of Spotify on the exchange will affect not only the company and its shareholders, but also those market participants who do not have a direct relationship to the service. First of all, these are traders - the forecast that Spotify shares can make sharp jumps attracts them with the opportunity to earn money.
Record companies and artists can also benefit from the upcoming auction. The three largest labels - UMG, SME, WMG - 5% of Spotify shares . And they all plan to share the proceeds from the sale of the company's shares with their artists.
Spotify trades have already indirectly affected ordinary listeners. In March, it became known that the service began to combat pirated applications that allow you to listen to music for free and without advertising. The company threatened to block users of illegal applications that help circumvent the limitations of the service. This step is associated with the preparation for trading - the company needs to convince shareholders of the absence of any problems.
Spotify's direct listing will be closely watched by other technology companies preparing for an IPO. The future of this model depends on the success or failure of unusual trades - it will confirm either its efficiency or market concerns.
By the way, Spotify is not the only example of a music project entering the stock exchange. For example, a company owning the rights to Eminem’s tracks recently appeared on a mini-IPO, and the singer’s royalties became analogs of the shares (we told about this case in more detail here ).
Announcing the date and details of the upcoming auction, the head of the service Daniel Eck also mentioned that Spotify entered new markets - therefore, in the near future, the service will not only hold an IPO, but will also be available in India, South Africa and Russia .
Interesting posts on the topic - in our "World Hi-Fi":
- Learning service Tidal: tricks with MQA
- What is it: the Russian market of streaming services
- What radio listeners and radio hosts hate
- Radio plays: very well forgotten old
- “For every taste”: streaming services for listening to music
- "Just to take and listen to music": 5 ways and formats to choose from
- Tidal is not for throwing: exploring the most famous streaming audio service
Source: https://habr.com/ru/post/371359/
All Articles