Streaming service Spotify will conduct a direct placement of shares instead of IPO
In early April, the popular streaming service Spotify will go public. The company plans to raise $ 1 billion, however, instead of a traditional IPO, it will conduct a direct public offering. This listing method may be more convenient from a business point of view, but carries far more risks. We will tell you why Spotify decided to enter the exchange in this way in our new topic.
How direct placement differs from IPO
During the traditional IPO, companies use the services of intermediaries, the so-called underwriters . These are financial organizations that help determine the initial bid price, work out documentation and monitor compliance with regulatory requirements, and also redeem shares of the company so that they can then be reallocated to various investors for sale. Typically, underwriters charge between 2% and 8% for their services. That is, a significant amount of funds raised through an IPO goes to intermediaries.
But for companies that do not want to spend money on attracting underwriters, there is another, more economical way - direct listing (DLP). In this case, investors, promoters or even employees who own shares of the company sell them directly. At the same time, the company does not issue new shares and avoids a period of blocking. The disadvantage of this method of placement is that the company loses the guarantee of the sale of shares and it also needs to conduct all related operations independently.
Why Spotify Direct Listing
According to Jorgeen Parson (Par-Jorgen Parson) - the first Spotify investor familiar with the issue, the company refused to conduct a traditional IPO, as it believes that the rules for its implementation established in 1930 are already outdated. In particular, they did not want to resort to the services of intermediaries, who often did not even understand the essence of the process. In addition, Spotify did not want to raise capital and pay hundreds of millions of dollars for underwriting, which, in fact, they do not need.
The creator of the service for the sale and purchase of Stockpile shares, analyzed the actions of users and came to the conclusion that the Spotify and Dropbox offers are very interesting for young millennial investors, since they regularly use these products.
Since large technology IPOs are rare, Spotify has a good chance of having it successfully. In this case, other technology companies that want to enter the exchange will understand that alternative IPO methods can work quite well.
What is Spotify's current market position?
Spotify management has already reported that potential investors should not expect low stock price volatility, it could plummet, or vice versa. But serious fluctuations can still be avoided if the shareholders are not too actively selling shares.
Spotify's stock price fluctuates a lot. So, in 2017, the value of the company ranged from $ 6.3 billion to $ 23 billion, and after the announcement of plans to enter the public market, the share price rose by 25%. Some experts expect the Spotify IPO to be one of the five largest technology offerings.
At the moment, the most popular Spotify strimingovy service, it signed more than 70 million users, more than twice betterthan Apple Music. However, the company still incurs losses due to problems with paying royalties. In 2017, Spotify went negative by $ 1.5 billion due to large claims for unpaid royalties to copyright owners. The company management hopes that the listing will help to cope with the situation and cover losses.
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