Three Questions Concerning Spotify’s Direct Listing Decision

Why Spotify’s decision to list directly leaves me with a bunch of unanswered questions.

  1. The company’s growth (or lack thereof).
  2. The company’s size (in terms of revenue).
  3. The general climate of the industry.

1. Company Growth

Spotify has the kind of crazy growth that companies dream of. As its subscriber numbers have gone from 50 to over 100 million users, Spotify’s valuation has similarly been adjusted. It’s worth remembering, though, that while the total subscriber number sits somewhere north of 130 million users, approximately 60 million are paying listeners.

2. The Company’s Size

This kind of fast-paced growth also contextualizes the music company’s size in terms of its revenue. According to Daniels, the size of a company’s revenue will dictate how larger institutions view it; if the revenue looks too small, larger institutions could deem the company too early or too risky, and therefore might be uninterested. But given Spotify’s outsized growth, though, perhaps this is a reaction to its continued unprofitability (as of yet).

3. General Industry Climate

Daniels also noted that in some direct listing cases, the decision to forego a traditional IPO could be something as simple as a timing issue. Industries go through hot and cold periods, and a cold period could convince a private entity to forgo the public process.

Saving Money

Outside of Barrett’s outline for going direct, Spotify could limit costs by foregoing a normal, pre-IPO roadshow. However, experts have pointed out that this doesn’t make much sense. The money which Spotify would save on an IPO roadshow is negligible compared to the amount it would ultimately raise in a normal IPO.

Stopping The Clock

Last year, Spotify took on convertible debt from Dragoneer and TPG, totaling $1 billion. According to David Golden of Revolution Ventures, by listing directly, Spotify could essentially “stop the clock” on these debt-conversions, and presumably, save itself tens of millions of dollars.

The Questions Left Lingering

All of this leaves a lingering question: if neither of the two most-cited arguments hold water, does the decision to direct list have anything to do with Spotify’s $20 billion valuation? There have been, as of late, multiple sources which have raised concerns, expressing reticence and opining what a public Spotify will look like. Spotify did not respond to a request for comment.

  1. What Spotify royalty rates are. It has been reported the company pays anywhere from 58 percent to 83 percent.
  2. How often Spotify needs to renegotiate royalty deals with the major labels.
  3. What the percentage stakes each major label owns of Spotify.

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Adam Marx

Master Relationship Builder @Zero2OneNetwork 🚀 | @ATLTechVillage Advisor 😎 | Speaker 🎙️ | Prev. CEO @glipple + published @crunchbase, @mattermark + more ✍️