Spotify is preparing to go public with an unconventional direct listing in spring, The Wall Street Journal reported Friday, citing people familiar with the plan. The move would see the music streaming service have its shares listed on the New York Stock Exchange without an underwriter, thus avoiding a number of issues traditionally associated with initial public offerings but also opening the possibility of creating new ones. Such a gamble currently isn’t even legal and must first be approved by the United States Securities and Exchange Commission upon request of the NYSE who proposed changing its listing rules in order to accommodate Spotify. The federal regulator is likely to approve the change in early 2018, whereas Spotify is planning to hold an IPO in March or April, insiders claim. Under the present proposal and as dictated by the federal law, the SEC must make a decision on the matter no later than February 15th.
Spotify’s current valuation is estimated to hover around the $20 billion mark, more than double the $8.5 billion figure given by investors who participated in its last private funding round in 2015. Besides positive performance and growth that outpaced losses, the spike is largely attributed to Spotify’s recent exchange of stock with Chinese tech juggernaut Tencent. Should the plan go through, Spotify would list its shares on the NYSE without raising cash, with the benefit being it would avoid hefty underwriter fees. Such a turn of events could potentially propel Spotify to greater heights than a traditional listing but also comes with an added risk of its shares crumbling due to a lack of protections from underwriters and the fact that insiders aren’t restricted in regards to when they’re allowed to sell their stakes. While the NYSE completed no direct listings in the last decade whereas Nasdaq recorded a handful of such initiatives, Facebook’s problematic 2012 IPO discouraged many tech companies from opting for Nasdaq, especially after the NYSE started easing its rules to better accommodate them.
While a direct listing may make sense for a high-profile startup with clear IPO ambitions and long-term plans like Spotify and Airbnb, the SEC is said to have some concerns about opening the floodgates to a new generation of extreme risk seekers who’d be able to use the public markets in order to raise cash from investors while providing them with little to no protections, sources claim. Should the music streaming service finally go public after a decade in the business, it would likely be the subject of the second largest tech IPO in 2018, surpassed only by Xiaomi that’s said to be seeking a valuation of no less than $50 billion and may also opt for the NYSE, though it’s presently understood to be much closer to filing for an IPO with the Stock Exchange of Hong Kong.