Spotify’s successful direct listing could change the way tech’s “unicorns” go public, possibly even saving them some money. But let’s not get self-righteous about it---this is still capitalism.
Typically, when companies go public, they follow an elaborate series of protocols. They hire bankers, who charge tens of millions of dollars to help them craft a narrative, woo investors in highly orchestrated “road shows,” gauge investor demand, pre-sell shares, and then, after the CEO triumphantly rings the stock exchange opening bell and conducts breathless TV interviews (“I’m humbled”), the bankers carefully float the stock to ensure a smooth first day of trading.
Spotify’s direct listing skips all of that. It’s an unusual form of going public typically used by small companies, not high-profile consumer-facing tech firms valued at $29.5 billion. By directly listing, Spotify saved a little money (but not that much) on banking fees. By not issuing new shares, it did not reduce the ownership stake of existing shareholders. Its executives skipped the opening-bell ceremony and traditional trading-floor interviews, leaving CNBC anchors to spend the morning describing the buy orders from the trading floor, debating the company’s merits with the college professors, and interviewing KISS frontman Gene Simmons. (Simmons praised Spotify---“The Swedes have figured it out”---before bemoaning the sad state of record labels.)
Despite fears of a volatile, unpredictable debut, shares opened at $165.90 after several hours of negotiations. And despite the lack of bankers on hand to smooth out the price, the stock did not immediately tank or spike. CNBC commentators expressed surprise that the process was more orderly than some regular IPOs.
The transaction highlighted the emerging cracks in the IPO Industrial Complex. Like several other tech “unicorns” valued at $1 billion or more, Spotify does not need most of the trappings of a traditional IPO. It has already been behaving like a publicly traded company, reporting its financials publicly in Europe. It has raised all the capital it needs from private market investors ($2.7 billion including debt and secondary transactions, according to Crunchbase). It has plenty of name recognition among investors. And it has even let its investors sell their shares on the secondary market prior to going public. Spotify is not the first company to attempt to disrupt the IPO process; Google’s famous Dutch auction IPO was regarded as a flop and few companies followed its footsteps.
More notable than Spotify’s rejection of traditional IPO banking services, the company’s direct listing gave it an opportunity to engage in the tech industry’s favorite ruse: self-righteousness about capitalism. “For us, going public has never really been about the pomp or circumstance of it all," CEO Daniel Ek said at an investor presentation the company livestreamed in March. That rejection of Wall Street traditions and their cold, materialist greed is popular among tech companies, who like to believe they answer to a higher calling than money. On the day of Facebook’s IPO, CEO Mark Zuckerberg declared, “Our mission isn’t to become a public company.” (The company’s mission, “making the world more open and connected,” has since changed in light of its threat to democracy.)
Spotify’s rejection of Wall Street’s version of “pomp and circumstance” feels disingenuous, given the company is not a stranger to such spectacles. Spotify is famous for throwing elaborate, highly produced press events in swanky studios to announce even the tiniest business development. One was to announce a partnership with Coca-Cola, another to share the news that its app now includes podcasts, another to say Metallica had joined the platform. I remember one with pizza hanging from metal hooks, served by male models. Spotify always uses the opportunity to show off its connections to hot artists like Frank Ocean, D’Angelo, Janelle Monae, or Vampire Weekend.
Spotify’s mission carries tech’s by-now-tired change-the-world kumbaya message: “Unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by these creators.” Its vagueness and lack of descriptive words like “music” or “streaming” means it could apply to almost any tech company in Silicon Valley.
Spotify went public in an untraditional way. Now, though, it will quickly learn that investors treat it no different than any other company, just as Facebook did in its first year as a public company. After watching Facebook’s stock price languish in the months following its IPO, Zuckerberg succumbed to the song-and-dance, joining quarterly earnings calls and making passionate sales pitches for his company’s business success. Tech company CEOs may not like the game, but they still have to play it.
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