Music streaming service Spotify is set to float on the New York Stock Exchange (NYSE) today, and it is keeping investors on their toes to the very last minute.
The NYSE has this morning set a reference price of $132 (£94) per share, which would give Spotify a market cap of around $24bn on the open.
The business, which some brokers are estimating could outrank both Twitter and Snap to become the world's second largest internet float behind Facebook, is pursuing an unusual direct listing. This means that rather than being backed by investment banks, who underwrite the process and help to decide the price of shares, Spotify is jumping onto the public markets alone.
The NYSE's reference price is only a guide, and will not determine the price which the shares actually begin trading at. But it will be used by Citadel and Morgan Stanley, who will analyse investors’ buy and sell orders when building the order book early this morning and then set an opening price for the stock.
Spotify recently cut off around 2m of its free service customers after discovering that they were using adblockers to avoid mandatory adverts rather than pay for its premium service. The combination of this and the direct listing could lead to a volatile birth for Spotify on the NYSE.
"Spotify is about to make a splash on the stock market, and has chosen to simply dive straight into the New York Stock Exchange rather than being lowered in gently by the usual consortium of investment banks," said Hargreaves Lansdown's Laith Khalaf.
"This approach will save the company money, but will probably lead to volatility when the stock starts trading as the market tries to find a price it’s comfortable with."
Spotify has said that recent private transactions have valued its shares at between $48.93 and $131.88, but brokers have initiated recommendations at $200 or more. This could place the business's IPO value in excess of $37bn.
Yet is is unclear what investors will make of the music streaming business. Last week Spotify produced financial outlook estimates for the year ahead – it said revenue should grow by 20 to 30 per cent, but that it still expects to book an operating loss of €230m to €330m.
"The fact the company isn’t turning a profit means the price discovery mechanism of a direct float is even more likely to be choppy. That’s because investors are going to have to choose from a host of secondary valuation measures in the absence of a traditional price earnings ratio to latch onto," said Khalaf.
IG Group, the online trading business, has been placing its own bets on Spotify. "IG clients now expect the market cap on the first day to be $24bn, around $133 per share. This is down from a high of $29bn, or $160.70 per share," said IG's chief market analyst Chris Beauchamp.
"Napoleon once observed that generals should be lucky, not just good, and the same applies to companies listing publicly. Spotify may find its arrival spoiled by a general market rout that won’t leave its listing immune.”
How Spotify would compare to other internet IPOs
|Company||Date IPO was announced||Value at IPO||Value now||Percentage change|
|February 2012||$81.2bn||$446.3bn||450 per cent|
|Snap||February 2017||$19.7bn||$19.2bn||-3 per cent|
|September 2013||$14.4bn||$21.2bn||47 per cent|
|Groupon||June 2011||$12.8bn||$2.5bn||-80 per cent|
|Divine||December 1999||$5.5bn||$0||-100 per cent|
|Webvan Group||August 1999||$4.8bn||$0||-100 per cent|
|Linkedin Corp||January 2011||$4.3bn||$26.2bn||509 per cent|
|CDW Corp||March 2013||$2.9bn||$10.6bn||266 per cent|
|Northpoint Communications||February 1999||$2.9bn||$0||-100 per cent|
|Alphabet||April 2004||$2.9bn||$701.5bn||24,090 per cent|