SPOTIFY, WEEK ONE
Spotify ended its first week on the New York Stock Exchange at closing price of $147.92. After a week in which its valuation peaked near $30b, the company has settled in around $24b. Is a car speaker their next news?
CEO Daniel Ek’s vision for the stock offering was an event far less flashy than other IPOs that include the ringing of the NYSE bell and lining up financial institutions to provide a backstop in case the stock price falters.
If week one is any indication, investors bearish on streaming—one analyst declared it worthy of $220 a share—were rebuffed by investors who have grown timid lately, most likely because of the decline in tech stocks and a reluctance to invest in new companies that have never show a profit. Spotify checks both boxes. Add to that, the fact that Spotify does not produce, nor own, its content.
Sony Music was the first—and only—of its major label investors to shed shares. The company sold 17.2% of the stock it owned, taking its ownership stake down to 4.73%. Sony have not provided any guidance on the timing of its sale, but if it occurred right when sales began, at the opening prices of $165.90, they would have grossed $258m.
The spotlight will move elsewhere in the coming weeks and it will be interesting to see if Ek’s subscription growth-oriented ideas—get more people to join the pay tier and expand into new territories—are greeted with a rise in the stock price. Experts who view Spotify as the music equivalent of Netflix see it as undervalued based on a single math formula: Spotify is trading at a little over four times its estimated annual revenue while Netflix is around eight times.
Another factor to consider in seeing a brighter future: The launch came during a correction period for stocks as the Dow had its worst day in two weeks on Friday. Yet it was not a case of sellers dumping stocks. Instead, buyers are staying on the sidelines paying attention to headlines and tweets about rate hikes, trade wars and tech company investigations, waiting for quarterly results reports next week.
One of Spotfiy's chief competitors, Apple, has a history of dangling dates for mystery announcements that elicit interest in consumers and investors. It’s quite possible Spotify has decided to play that game, too: On Friday, Spotify announced it would deliver some news at a 4/24 event in New York. The Internet rumor mill immediately began speculating that Spotify is entering the hardware business, specifically a voice-controlled device for cars. That could well be the sort of game changer that pushes Spotify’s stock past its current 52-week—of four day—high of just under $170. Stay tuned.
