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Unusual Approach: Spotify Saves Millions by Direct Listing on Wall Street

Daniel Ek, the chief executive of streaming service Spotify, is clearly a master of understatement. In a blog published ahead of the company’s stock market flotation today, he warned employees and customers: “I have no doubt there will be ups and downs.”

That is certainly likely to be the case in shares of this business. Markets are choppy enough right now, particularly in shares of technology companies, following Donald Trump’s recent public sabre-rattling against the likes of Amazon.

And Spotify is taking things one step further with a very unorthodox approach to floating on the stock market.

Normally with an Initial Public Offering (IPO), companies coming to market hire investment banks to advise on the process, organize a roadshow with would-be investors and help market the shares.

Crucially, these banks also “underwrite” the offer, meaning that they agree — at a price — to buy any shares that go unsold at the flotation. This ensures that there is stability in the market when the shares begin trading.

In the case of Spotify, it has opted for a so-called “direct listing”. It has hired Goldman Sachs, Morgan Stanley, and the boutique investment bank Allen & Company as financial advisers. But they will not be underwriting the issue as there are no new shares being sold.

The shares will simply float on the New York Stock Exchange, with no banks to mop up any excess stock, no-one to set the share price via the underwriting process and no-one to allocate shares to investors.

This approach will save Spotify tens of millions of dollars in fees. But it could mean trading in the shares will be exceptionally volatile as a result. The shares will simply find their own price, depending on how many buyers and sellers there are, while it could take some time for a price even to be…

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