IPO

Spotify Gets Ready To Go Public

Spotify might go public this year, about one year later than the company originally planned.

Unnamed sources told Axios that Spotify filed Securities and Exchange Commission (SEC) documents in December for an initial public offering (IPO). The documents are still confidential.

Sources in a CNBC report, however, claimed Spotify will be a direct listing on the New York Stock Exchange (NYSE) by the end of the first quarter of 2018, assisted by Morgan Stanley, Goldman Sachs and Allen & Company.

If Spotify proceeds with a direct listing, investors would only be able to buy shares on the open market with no predetermined price. But, if Spotify were to choose a traditional IPO, the music-streaming company could offer investors shares first — and underwriters would set an initial price.

Spotify’s goal had been to go public in the second half of 2017, but the company instead weighed a plan to delay an IPO until 2018, giving it additional time to build a better balance sheet and shift its business model to fixed pricing as a way to improve its margins.

“It’s hard to build something sustainable around the revenue model as it exists today,” a source told TechCrunch in 2017. “If anything, a delay of the IPO window could give the market, Spotify’s (label) owners and the management a little more time to recreate something.”

Record labels — in particular the big three: Universal, Sony and Warner — take home about half of Spotify’s sales. As of September 2016 — the last time Spotify publicly updated its figures — the company reported it had cumulatively paid out some $5 billion to music rights holders.

Spotify has tried to negotiate its licensing rates down, but music labels have countered that Spotify already pays a submarket rate. The company needs a deal in place before it can have an IPO, and the firm’s last billion-dollar funding round included terms that allowed investors to convert their stakes into shares at a 20 percent discount to the IPO price — a discount which grows over time.

Spotify recently expanded its ambitions, diversifying its platform — possibly in preparation for an IPO.

In November, PYMNTS reported that Spotify expanded its partnership with Merchbar to sell merchandise via artists’ profile pages. The company has also offered listeners the opportunity to purchase a bottle of Jameson and have it delivered to their doors — all within its mobile app.

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