The digital music giant, Spotify, going public on Wall Street this week is the largest consumer tech company to do so since Snap Inc. last year.
But what makes this Wall Street debut different?
In an unprecedented, even risky move for a company of their size, Spotify is debuting in an unorthodox fashion — as a direct listing instead of a traditional IPO.
Meaning no raising of new funds, and no issuing of new shares come trading day.
Analysts admit this can result in much volatility, specifically in the first days of Spotify’s trading.
Direct listings are rare and risky, especially for a high profile company like Spotify.
But without issuing new shares, this, in effect, is a way for spotify to reward investors and shareholders who have been with them since the beginning.
“The pros of a direct listing, obviously that it’s a lot cheaper, you allow yourself a little bit more control over where the shares are going, and obviously a lot of Spotify employees who may have been there since day one, their pay will have been in Spotify shares. They’re finally allowed to make good on the promises and the investment they were given and allowed to cash out,” says chief economist Jeremy Cook.
“The cons are that we may, you know, we may see investors move this price around quite a bit. There is no underwriting process within this IPO,” Cook adds. “If the share price does start to move south, there’s no bank behind it going we’re going to continue to buy these shares to make sure we get some form of stability in this price until the market actually settles down.”
What does this mean for Spotify’s consumers?
Predictions include the music giant diversifying its reach to produce more original content — making it further stand apart from its rivals.