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SPOTIFY GOES PUBLIC:
WHAT TO EXPECT

Spotify will go public on Tuesday. Prognosticators are predicting first day sales for the streaming giant’s direct listing will not resemble the activity of a standard, heavily anticipated IPO. Instead, it could be a turbulent day one for the NYSE’s only new listing this week.

The Wall Street Journal reported that Spotify executives have already cautioned that day one trading could result in greater volatility than an IPO as there is no bank to provide a financial backstop. It’s believed the company will post 162.0 million shares for sale on Tuesday.

How much they’ll sell for is anyone’s guess.

Mark Mahaney of RBC Capital Markets has set a $220 per share price target, giving the company a valuation of $43.5 billion. His prediction indicates a significant swell of interest in the last month: In the first two months of the year, Spotify had noted that its top price among private investors was $132.50.

New York bank Manhattan Venture Partners said Spotify shares had been selling for as much as $150 in the last two weeks, according to the U.K.’s Telegraph. That values the company at around $26.5bn.

A more bearish approach comes from Business Insider, which notes that the current downdraft among tech companies in the wake of Cambridge Analytica scandal could affect Spotify’s early sales. Facebook, Amazon and Apple were down last week and dipping again today in early trading; the question for investors is how gung ho will they be to pony up for an unprofitable newcomer. It may soar on its own, but once it goes public, Spotify, too, will be susceptible to turbulence among tech stocks.

The direct listing does provide a cushion against seismic shifts in price. Spotify will not see an inflated price at its start, Seeking Alpha predicts, nor will it experience a significant drop-off at the six-month mark, a time when most companies issue a second bundle of shares.

On the bright side, Spotify CFO Barry McCarthy said at a recent investor presentation that profitably is imminent. The company’s operating losses have decreased as a percentage of revenue, and its free cash flow has been in the black for two years. He also said Spotify would still be investing at the expense of profits. Will shareholders be patient and wait for those investments to produce dividends?

Glassnote chief Daniel Glass is particularly bullish on the company, telling the New York Times he views the two-tiered Spotify approach as similar to the way uncle ran his luncheonette in Brooklyn.

“All the good customers—even the new customers—he would give them free samples of the day’s specials,” Glass told the Times. “ ‘We’re having brisket today.’ ‘Have some coleslaw.’ They came back and ordered more. Spent more money.”

For those of you playing at home, the NYSE stock symbol is SPOT. Expect to see plenty of See SPOT Run headlines.

 

 

 

 

 

 

 

 

 

 

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