Shares of Sweden-based company Spotify Technology (NYSE:SPOT) rallied by almost 12% during Tuesday’s trading session where the company officially launched the initial public offering of its shares. Spotify shares, which was offered at an initial projected price of $132 per share traded by as much as $165.90 as it traded on the New York Stock Exchange for the first time.
The company who announced its IPO plans last month also announced its intention to follow a different model of an IPO launch rather than following the usual traditional route others usually take. Instead of issuing new shares to be made available to the public, Spotify announced instead that it would be allowing its employees and private investors who have had the opportunity to buy its shares over the past couple of years to start selling their shares publicly.
This model would allow the company to cut some costs which are usually paid during the initial public offering of shares. These costs include payments needed to be settled with banks who usually act as underwriters for the share IPO. Spotify’s IPO approach which is called a direct listing is usually used by smaller companies where shares would be sold or offered to the public without the need of a middleman or an underwriter.
Spotify’s chief executive Daniel Ek justified this decision in a statement stating that the company “has never been a normal kind of company”. According to Ek, the company will instead focus on building, planning, and imagining for the long term. Ek also added that the big state that the IPO will place the company will not change what the company is about and how it operates.
The company also does not intend to push its capital higher with the IPO despite the company needing a boost on its cash reserves. Currently, the company earns around $5 billion in revenue with a huge percentage being used to pay music labels or producers royalties.
Spotify, which offers a free streaming service available for an upgrade, currently has more than 130 million subscribers. However, the company only has recorded around 70 million paying users with more than half accessing the service for free. This contributes around 10% of its overall revenue every year for the advertising seen by non-paying users. Despite the concerns regarding the earnings and expenses of the company hampering further growth, Spotify has reportedly been negotiating with producing companies in regards to the fees it has been paying. However, Spotify Remains to be one of the leading music sites and applications worldwide which provides its investors an upbeat outlook on its growth in the coming months.