9 ms·

Will Spotify go public without an IPO?

69 points by Heffay626 10y ago

devoply 10y ago
They reason they are not doing an IPO is because they can't. But I think this is a great idea.
- igor_filippov 10y ago
  Out of interest, why can't they?
  - deleted 10y ago
    [deleted]
- wastedhours 10y ago
  I always thought it was in their interest to go public due to their debt position - is it perhaps that an IPO specifically opens them up to a certain repayment type (i.e. contract terms that are based on an "IPO" rather than a stock market listing?) whereas they can avoid that by going down another avenue?
- skinnymuch 10y ago
  Because their financials are bad? I thought them not going public was bad because of their debt deals
grabcocque 10y ago
Spotify has lost 20% market share in 2 years, in the same time pushing their annual losses to $200m. Growing your losses whilst losing market share is not an enormously attractive value proposition to investors.
- Longhanks 10y ago
  Good. They have been so out of touch with what their users want, it's time they wake up. Examples: - Redesigning the client multiple times - moving from native clients to essentially a bundled browser - removal of lyrics feature - can only store 3333 songs offline on a device - 10000 songs is the limit for the library - Still no Hi-Fi option - Can't add third party songs to the cloud library And the competition is definitly rising: For example, Apple Music offers lyrics, a song limit of 100000, can store all of those songs offline, play back on 10 different devices at the same time and store all those songs offline. Also, you can drag and drop the songs that are unavailable into your library, which makes them available on all of your devices. Once Apple Music releases a web player (or a client for Linux), I'm done with Spotify. For the moment, I need it for my desktop, which runs Linux.
  - thanatropism 10y ago
    The thing that most bothers me about Spotify is that it boots to a "top music right now worldwide / in your country". When it also has a "Discover" system that works semi-well. Why not open to the Discover screen? If I was that plugged in into the zeitgeist pop music-wise, why wouldn't I just listen to the radio?
  - mstade 10y ago
    I moved to Apple Music about 6-8 months ago, but had essentially stopped using Spotify before then for many of the reasons listed above. The many changes to the iOS app, songs disappearing from playlists when moving between countries, and with offline synced songs disappearing at random times, I just lost interest. The move to Apple Music wasn't entirely without friction. There was no very good migration story, only third party apps and the results of these were so-so at best. But this was a one time cost, since then it's been a smooth ride. I pretty much only use apple hardware and the fact that Apple Music works great on all platforms is a huge win for me – Spotify doesn't even have an Apple TV app which was also a pretty big reason for my switch. I also feel that Apple Music has improved a lot in these past 6-8 months, perhaps not so much in terms of app features and the likes, but I've definitely noticed changes in music availability. Most tracks and albums that I searched for half a year ago but weren't available are there now, and when I started I felt it was hit-and-miss whether the particular songs I was looking for would be there or not. Today I can't remember last time I tried to find a song but it wasn't available. The only annoying thing now are my friends sending me Spotify links, since it means I have to look up the link, see what song/album they are linking me to, and search for it in Apple Music. This feels like something we should've solved with URNs instead of URLs...
- javier2 10y ago
  Any sources on this?
- caractacus 10y ago
  How is market share particularly important when their overall subscriber numbers have rocketed? The entire streaming market is increasing massively atm and all services are growing (well, maybe not Tidal...).
mac01021 10y ago
I'm ignorant, but I'm sure many others here are too: How does one become a publicly owned/traded enterprise without an initial offering of one's shares to the public?
- Arnt 10y ago
  Normally, the company creates a number of new shares when the company goes public, offers the new shares to the public and uses the income to... well, to do something. Existing shareholders typically promise not to sell their shares for six months or so. But it's perfectly possible to have some existing shareholders offer a few shares for sale instead of emitting new shares. Unconventional, and I'm sure some people disapprove of it for that reason, but perhaps the company doesn't need the cash and the existing shareholders don't want the dilution?
- JumpCrisscross 10y ago
  There are two stages to most American IPOs: registration and the initial public offering. Registration means your shares can be sold without relying on a Securities Act exemption [1], e.g. the rule which lets one sell private shares to accredited investors [2]. When you register, you have to start disclosing certain information, e.g. your financials, to the public. This is a hassle and expense most companies delay for as long as possible. Companies must register before an IPO; this is why registration and public offering are commonly conflated. "IPO" specifically refers to the process by which an underwriting bank buys shares from the company (including, potentially, current investors) at a certain price and then sells those shares to the public at a different--hopefully higher--price [3]. Some companies cut out the underwriters by directly offering their shares to the public [4]; this is less common. Spotify appears to be contemplating registering its shares but not issuing any new ones to the public. I presume this is to stop the bleeding from their TPG notes, which penalize them for not going public [5]. This would let existing investors more easily sell their shares. It would not raise new money for Spotify. Depending on the jurisdiction it chooses, reporting requirements may be lighter than the United States'. [1] https://www.sec.gov/fast-answers/answersregis33htm.html https://www.sec.gov/fast-answers/answersregis33htm.html [2] https://www.sec.gov/fast-answers/answers-rule506htm.html https://www.sec.gov/fast-answers/answers-rule506htm.html [3] https://en.wikipedia.org/wiki/Initial_public_offering https://en.wikipedia.org/wiki/Initial_public_offering [4] https://en.wikipedia.org/wiki/Direct_public_offering https://en.wikipedia.org/wiki/Direct_public_offering [5] https://www.bloomberg.com/gadfly/articles/2017-02-08/spotify-needs-a-little-help-from-its-friends https://www.bloomberg.com/gadfly/articles/2017-02-08/spotify...
meagher 10y ago
The second part of this quote: > “It seems short-sighted and very risky,” said Barrett Daniels, CEO and managing partner at Nextstep Advisory Services. “Don’t they want money?”
WhitneyLand 10y ago
This is the future. The value added by investment banks does not justify 10's or 100's of millions in fees. It's one of the biggest remaining inefficiencies in company growth that needs disruption. The reason it hasn't happened yet seems straightforward. Companies are hesitant to be beta testers of a new model where so much is at stake. No one ever got fired for running an IPO through Goldmen Sachs. The principle of people making obscene amounts of money doesn't bother me one bit. It would be nice if teachers had higher salaries, but NBA players make more money than teachers for many objective reasons. This situation is different. Does anyone think this is the best we can do? One quick example: http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks-really-make-money-on-ipos http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks...
- JumpCrisscross 10y ago
  You may be conflating what's going on here with a direct public offering [1]. Google, for example, did not use an underwriter in its DPO-style offering [2]. (Partly as a result, they massively underpriced.) Spotify isn't doing a DPO nor an IPO. They will simply allow their shares to be traded by third parties. Since Spotify, itself, is raising no cash there isn't a need for an underwriter nor an auction process. Each investor will need to figure out listing, trading, clearing and settlement, et cetera mostly on their own. [1] https://en.wikipedia.org/wiki/Direct_public_offering https://en.wikipedia.org/wiki/Direct_public_offering [2] http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1534&context=btlj http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?arti...
  - acchow 10y ago
    Partly as a result, they massively underpriced Snapchat had underwriters and popped 50% on opening. Isn't that also massively underpriced? Life insurance and health insurance companies don't make the obscene margins and figures that investment banks do. Investment banks basically rob you silly when they underwrite. It's not insurance. It's clear that you will be underpricing if you want your IPO to be underwritten.
    - 10y ago
alexkon 10y ago
A noob question: Why don’t companies just bypass the underwriters and offer their stock for sale using a Dutch auction, where the price starts very high and gradually decreases until the most optimistic investors decide to buy? That way, the company always sells at the highest price the market is ready to offer.
- Hermel 10y ago
  I think Google tried something like that, with mixed success. I think that firms should actually do IPOs in multiple incremental steps.
- gjem97 10y ago
  Companies with limited name recognition outside of their industry--Okta comes to mind--may not be able to scare up enough liquidity in the marketplace to absorb the millions of shares on offer by the company. A true unrestricted dutch auction may end up going off close to zero. That's what the IPO roadshow is about, giving your pitch and soliciting bids for shares. The investment banks act as gatekeepers to these potential investors, and arguably getting face time with their clients is a large part of what the fees the company pays are for.
  - jcfrei 10y ago
    Couldn't such an auction be performed entirely online? An online dutch auction where institutional and retail investors can buy shares in an online live auction? There might be some technical hurdles to solve to ensure everybody is updated while the auction is running but this would at least reduce the liquidity problem for these auctions.
    - gjem97 10y ago
      Yes, however I think the hard part is getting the attention and interest of the investors in the first place. The IBs also act as a quality signal in the other direction, too. That is, I, as a potential investor am more likely to invest if the deal is brought to me by Morgan Stanley than if presented on some startup platform. I'm not passing judgement on that mindset, I'm just pointing out that it is the case for a large percentage of those potential investors.
CodeSheikh 10y ago
"They could also avoid the classic “leave money on the table” scenario, where institutional investors and the other high net worth individuals who have access to IPOs reap all the benefits from the first day’s gains." Main justification of IPO IMHO is greedy banks, early investors, and underwriters aiming to cash out a lot on the first day without giving a crap about the company or its employees in general. It is a welcoming step and a step in right direction. Cut the middle man out.
fudged71 10y ago
Why not a reverse takeover?
macca321 10y ago
They should go mutual and offer shares to their customers.
scarface74 10y ago
The biggest problem with Spotify is that they aren't a company they are a feature. Streaming music is being considered a low margin value add by companies with much deeper pockets like Apple, Google, and Amazon. None of Spotify's competitors are trying to make a company sustainable profit from music streaming.
rainhacker 10y ago
Curious why direct lending vs dutch auction like Google.

69 points by Heffay626 10y ago

devoply 10y ago

They reason they are not doing an IPO is because they can't. But I think this is a great idea.

igor_filippov 10y ago
Out of interest, why can't they?
- deleted 10y ago
  [deleted]
wastedhours 10y ago
I always thought it was in their interest to go public due to their debt position - is it perhaps that an IPO specifically opens them up to a certain repayment type (i.e. contract terms that are based on an "IPO" rather than a stock market listing?) whereas they can avoid that by going down another avenue?
skinnymuch 10y ago
Because their financials are bad? I thought them not going public was bad because of their debt deals

grabcocque 10y ago

Spotify has lost 20% market share in 2 years, in the same time pushing their annual losses to $200m. Growing your losses whilst losing market share is not an enormously attractive value proposition to investors.

Longhanks 10y ago
Good. They have been so out of touch with what their users want, it's time they wake up. Examples: - Redesigning the client multiple times - moving from native clients to essentially a bundled browser - removal of lyrics feature - can only store 3333 songs offline on a device - 10000 songs is the limit for the library - Still no Hi-Fi option - Can't add third party songs to the cloud library And the competition is definitly rising: For example, Apple Music offers lyrics, a song limit of 100000, can store all of those songs offline, play back on 10 different devices at the same time and store all those songs offline. Also, you can drag and drop the songs that are unavailable into your library, which makes them available on all of your devices. Once Apple Music releases a web player (or a client for Linux), I'm done with Spotify. For the moment, I need it for my desktop, which runs Linux.
- thanatropism 10y ago
  The thing that most bothers me about Spotify is that it boots to a "top music right now worldwide / in your country". When it also has a "Discover" system that works semi-well. Why not open to the Discover screen? If I was that plugged in into the zeitgeist pop music-wise, why wouldn't I just listen to the radio?
- mstade 10y ago
  I moved to Apple Music about 6-8 months ago, but had essentially stopped using Spotify before then for many of the reasons listed above. The many changes to the iOS app, songs disappearing from playlists when moving between countries, and with offline synced songs disappearing at random times, I just lost interest. The move to Apple Music wasn't entirely without friction. There was no very good migration story, only third party apps and the results of these were so-so at best. But this was a one time cost, since then it's been a smooth ride. I pretty much only use apple hardware and the fact that Apple Music works great on all platforms is a huge win for me – Spotify doesn't even have an Apple TV app which was also a pretty big reason for my switch. I also feel that Apple Music has improved a lot in these past 6-8 months, perhaps not so much in terms of app features and the likes, but I've definitely noticed changes in music availability. Most tracks and albums that I searched for half a year ago but weren't available are there now, and when I started I felt it was hit-and-miss whether the particular songs I was looking for would be there or not. Today I can't remember last time I tried to find a song but it wasn't available. The only annoying thing now are my friends sending me Spotify links, since it means I have to look up the link, see what song/album they are linking me to, and search for it in Apple Music. This feels like something we should've solved with URNs instead of URLs...
javier2 10y ago
Any sources on this?
caractacus 10y ago
How is market share particularly important when their overall subscriber numbers have rocketed? The entire streaming market is increasing massively atm and all services are growing (well, maybe not Tidal...).

mac01021 10y ago

I'm ignorant, but I'm sure many others here are too: How does one become a publicly owned/traded enterprise without an initial offering of one's shares to the public?

Arnt 10y ago
Normally, the company creates a number of new shares when the company goes public, offers the new shares to the public and uses the income to... well, to do something. Existing shareholders typically promise not to sell their shares for six months or so. But it's perfectly possible to have some existing shareholders offer a few shares for sale instead of emitting new shares. Unconventional, and I'm sure some people disapprove of it for that reason, but perhaps the company doesn't need the cash and the existing shareholders don't want the dilution?
JumpCrisscross 10y ago
There are two stages to most American IPOs: registration and the initial public offering. Registration means your shares can be sold without relying on a Securities Act exemption [1], e.g. the rule which lets one sell private shares to accredited investors [2]. When you register, you have to start disclosing certain information, e.g. your financials, to the public. This is a hassle and expense most companies delay for as long as possible. Companies must register before an IPO; this is why registration and public offering are commonly conflated. "IPO" specifically refers to the process by which an underwriting bank buys shares from the company (including, potentially, current investors) at a certain price and then sells those shares to the public at a different--hopefully higher--price [3]. Some companies cut out the underwriters by directly offering their shares to the public [4]; this is less common. Spotify appears to be contemplating registering its shares but not issuing any new ones to the public. I presume this is to stop the bleeding from their TPG notes, which penalize them for not going public [5]. This would let existing investors more easily sell their shares. It would not raise new money for Spotify. Depending on the jurisdiction it chooses, reporting requirements may be lighter than the United States'. [1] https://www.sec.gov/fast-answers/answersregis33htm.html https://www.sec.gov/fast-answers/answersregis33htm.html [2] https://www.sec.gov/fast-answers/answers-rule506htm.html https://www.sec.gov/fast-answers/answers-rule506htm.html [3] https://en.wikipedia.org/wiki/Initial_public_offering https://en.wikipedia.org/wiki/Initial_public_offering [4] https://en.wikipedia.org/wiki/Direct_public_offering https://en.wikipedia.org/wiki/Direct_public_offering [5] https://www.bloomberg.com/gadfly/articles/2017-02-08/spotify-needs-a-little-help-from-its-friends https://www.bloomberg.com/gadfly/articles/2017-02-08/spotify...

meagher 10y ago

The second part of this quote: > “It seems short-sighted and very risky,” said Barrett Daniels, CEO and managing partner at Nextstep Advisory Services. “Don’t they want money?”

WhitneyLand 10y ago

This is the future. The value added by investment banks does not justify 10's or 100's of millions in fees. It's one of the biggest remaining inefficiencies in company growth that needs disruption. The reason it hasn't happened yet seems straightforward. Companies are hesitant to be beta testers of a new model where so much is at stake. No one ever got fired for running an IPO through Goldmen Sachs. The principle of people making obscene amounts of money doesn't bother me one bit. It would be nice if teachers had higher salaries, but NBA players make more money than teachers for many objective reasons. This situation is different. Does anyone think this is the best we can do? One quick example: http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks-really-make-money-on-ipos http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks...

JumpCrisscross 10y ago
You may be conflating what's going on here with a direct public offering [1]. Google, for example, did not use an underwriter in its DPO-style offering [2]. (Partly as a result, they massively underpriced.) Spotify isn't doing a DPO nor an IPO. They will simply allow their shares to be traded by third parties. Since Spotify, itself, is raising no cash there isn't a need for an underwriter nor an auction process. Each investor will need to figure out listing, trading, clearing and settlement, et cetera mostly on their own. [1] https://en.wikipedia.org/wiki/Direct_public_offering https://en.wikipedia.org/wiki/Direct_public_offering [2] http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1534&context=btlj http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?arti...
- acchow 10y ago
  Partly as a result, they massively underpriced Snapchat had underwriters and popped 50% on opening. Isn't that also massively underpriced? Life insurance and health insurance companies don't make the obscene margins and figures that investment banks do. Investment banks basically rob you silly when they underwrite. It's not insurance. It's clear that you will be underpricing if you want your IPO to be underwritten.
  - 10y ago

alexkon 10y ago

A noob question: Why don’t companies just bypass the underwriters and offer their stock for sale using a Dutch auction, where the price starts very high and gradually decreases until the most optimistic investors decide to buy? That way, the company always sells at the highest price the market is ready to offer.

Hermel 10y ago
I think Google tried something like that, with mixed success. I think that firms should actually do IPOs in multiple incremental steps.
gjem97 10y ago
Companies with limited name recognition outside of their industry--Okta comes to mind--may not be able to scare up enough liquidity in the marketplace to absorb the millions of shares on offer by the company. A true unrestricted dutch auction may end up going off close to zero. That's what the IPO roadshow is about, giving your pitch and soliciting bids for shares. The investment banks act as gatekeepers to these potential investors, and arguably getting face time with their clients is a large part of what the fees the company pays are for.
- jcfrei 10y ago
  Couldn't such an auction be performed entirely online? An online dutch auction where institutional and retail investors can buy shares in an online live auction? There might be some technical hurdles to solve to ensure everybody is updated while the auction is running but this would at least reduce the liquidity problem for these auctions.
  - gjem97 10y ago
    Yes, however I think the hard part is getting the attention and interest of the investors in the first place. The IBs also act as a quality signal in the other direction, too. That is, I, as a potential investor am more likely to invest if the deal is brought to me by Morgan Stanley than if presented on some startup platform. I'm not passing judgement on that mindset, I'm just pointing out that it is the case for a large percentage of those potential investors.

CodeSheikh 10y ago

"They could also avoid the classic “leave money on the table” scenario, where institutional investors and the other high net worth individuals who have access to IPOs reap all the benefits from the first day’s gains." Main justification of IPO IMHO is greedy banks, early investors, and underwriters aiming to cash out a lot on the first day without giving a crap about the company or its employees in general. It is a welcoming step and a step in right direction. Cut the middle man out.

fudged71 10y ago

Why not a reverse takeover?

macca321 10y ago

They should go mutual and offer shares to their customers.

scarface74 10y ago

The biggest problem with Spotify is that they aren't a company they are a feature. Streaming music is being considered a low margin value add by companies with much deeper pockets like Apple, Google, and Amazon. None of Spotify's competitors are trying to make a company sustainable profit from music streaming.

rainhacker 10y ago

Curious why direct lending vs dutch auction like Google.