Did the company value the IPO correctly?
Spotify planned to launch an IPO in 2017 but decided to hold off until 2018 in order to build up a better balance sheet and work on changing its business model to improve its margins (Lunden & Roof, 2016). When Spotify did eventually go public, rather than making the traditional public offering, they went with a direct listing, which means they went public without the safety net of a bank underwriting the offering (“Direct listings: an alternative to IPOs”, n.d.). While this method is a much faster and less expensive way to go, there are some risks to this method. The main risk being that when you do an IPO, the opening cost of the stock is very calculated, while with a direct public offering, there is no predetermined number of shares or initial pricing available, they simply just start trading and let the market demand set the price. The reason that Spotify that chose this method was in part to ensure that employees and longtime shareholders could sell stock on day one if they chose to (Fiegerman, 2018).
Did the company value the IPO correctly?
To determine the value of the company Spotify started with historical data from trading in private transactions. However, during private funding rounds in 2017, the stock was trading at $48 to $132 per share, but during their IPO they started at $165.90 per share, 25% higher than the top end of private stock sales and more than 4 times higher than their low-end private stock sale (Spangler, 2018). This gave Spotify a market valuation of $29.5 billion, making it more valuable than CBS, Sprint, Dish Network, and Viacom. That being said, when the stock initially opened, the market did not need tank or skyrocket… it just kind of leveled itself off to close the day at $149.
Was the company able to generate additional value for shareholders via the IPO?
Aside from the private investors being able to trade immediately because of the direct listing, there does not appear to be much-added value to the shareholder for the company going public. Spotify was already acting like a publicly owned company by having reported its financials for years in Europe. In addition, they allowed stock owners to freely trade on secondary markets before the IPO.
What economic and market factors potentially influenced the results of the IPO?
The initial slide in stock price upon IPO is due to lackluster confidence in Spotify’s business model (Statt, 2018). However, the stock price has since held steady rather than tanking, indicating that the business is not your typical overpriced startup IPO.
Do you think the IPO was a success based on your analysis?
Given how similar companies have fared in their IPOs, I would say that the Spotify IPO was successful. In addition to finishing the day close to what they debuted at it showed that the market largely agreed with their valuation.