The tech scene may be recoiling from recent political controversies that have thrown today’s leading tech firms in the public spotlight, but the market has gone absolutely crazy for Spotify’s stock, and has given the company one of the most successful IPOs of the year thus far. The music streaming service garnered tens of millions of dollars more than it originally aimed for during its market debut, and the company’s stock has been consistently trading up since it first entered the market.
Here are the details behind Spotify’s IPO, and what the future holds for the ambitious streaming service.
Spotify hits the NYSE
When Spotify Technology SA (NYSE:SPOT) debuted in the market, it didn’t follow the traditional path that most tech companies which have gone public this year have followed. Spotify didn’t pursue a traditional IPO, instead gambling with a direct offering (or novel method, to some investors) that kept many of the company’s intimate financial details close to its chest before its debut. Investors didn’t seem particularly upset that the company went a non-traditional route; almost immediately when the market opened, Spotify shares began trading up, and while the company originally aimed for a reference share price of $132, share prices quickly spiked upwards, trading as high as $169 at one point.
While the market soon corrected itself, and Spotify shares closed at around $149-150 each, the soaring share prices came as a relatively unexpected boon to investors, and drew eyes from across the market. Given that many of today’s leading tech companies like Amazon (NASDAQ:AMZN) have seen their stocks slide after suffering from a Twitter onslaught by President Trump, many investors have shunned the tech market, believing that the hot political waters many tech companies are finding themselves in isn’t ideal for profits. Spotify’s IPO could very well change that; the company’s roaring success of a direct listing will doubtlessly inspire more confidence in the tech market, and illustrates that it has a very bright future.
The good news for Spotify isn’t merely restrained to its market debut, either; the company has enjoyed soaring revenues recently, according to filings it made with the SEC before its direct listing. The company has reported that it expects revenues to grow by 20 to 30 percent this year alone, which has garnered it quite a bit of positive press that’s sure to pique investor’s interest. Still, the company has some financial skeletons in its closet, given that investors haven’t really had any access to many key figures they traditionally seek up until now.
Despite Spotify’s climbing revenue streams, for instance, the company has a consistent history of posting net losses. Over the last three years alone, Spotify has posted total net losses that combined to reach around £870 million, the equivalent to slightly more than $1.2 billion. The firm listed itself to the NYSE without underwriters, without a set level of shares, and without too much confidence that existing investors would continue to back it, so investors who are looking for traditional tech stocks are likely to shun Spotify’s stock in light of its peculiar debut.
Does Spotify have a future?
As the company’s own prospectus makes clear, music streaming services have their work cut out for them; the growth of global digital music piracy, for instance, has led to the global music industry’s decline over the past two decades. Other streaming services like Pandora will doubtlessly keep the competition in Spotify’s industry at a fierce level, too, meaning the company certainly won’t have a cakewalk when it comes to expanding to the point where its net losses turn into net profits.
Still, there are plenty of reasons to believe that Spotify has plenty of potential for the future. After all, the company has proven quite adept at striking up lucrative business partnerships that prove greatly beneficial to its existing services; its partnership with Tencent Holdings Ltd ADR (OTC:TCEHY), for instance, a Chinese tech giant, has generally been met with smiles in the market, precisely because it bodes well for the future of both companies.
While Spotify’s share prices are likely to be more volatile than normal thanks to the peculiar nature of its direct listing, investors shouldn’t dismiss the streaming service out of hand just because it’s posting some net losses. If Spotify can expand its premium userbase, it will doubtlessly continue to see revenue streams swell rapidly, and the company remains incredibly popular amongst young users because of its seamless user experience and vast library of music. With an estimated 40 percent of all global music streaming being controlled by Spotify, don’t expect the company to die anytime soon. The non-traditional nature of its direct listing shows that the company is ambitious, and that the market is ready to back it against its leading competitors despite its net losses. The tech market may not be so hot right now, but Spotify is still enamoring many investors with its promising future.