Spotify secondary market climb expected to push direct listing into 2018

Provided exclusively by Mergermarket, an Acuris Company

Spotify’s share price is climbing so high in the private market that its direct listing is likely to be pushed back into 2018, according to two people briefed on the company’s plans and a sector advisor.

The listing is now expected in the first or second quarter of 2018, they said, or about a quarter later than anticipated. Earlier press reports, including one from this news service on 22 May, had pegged Spotify’s public market debut to occur either this quarter or in the first quarter of 2018. Spotify declined to comment.

The Stockholm, Sweden-based music streaming company’s stock recently traded at USD 3,800 per share in the private markets, up from USD 3,600 per share earlier in the summer, the two people said.

The price per share is so steep that there will likely be a stock split in the lead up to Spotify’s listing on the New York Stock Exchange to make it more accessible to public investors, the first person noted.

Secondary trades are taking some pressure off of Spotify by providing liquidity for employees who need to finance important life events and investors who are looking to close their funds, the first person said.

The trades have also provided the company with additional time to negotiate licensing agreements with music labels and grow its paid subscription base, which have in turn boosted its valuation, he said.

“The private market is doing exactly what management wants,” the second person added.

The company’s valuation recently approached USD 16bn in private secondary trades, or roughly 40% higher than it was trading several months ago, the first person said. Spotify’s valuation has fluctuated throughout the year. An offering made to employees in the spring pegged it at about USD 13bn.

Market sentiment in the private market is at its highest level since January 2016, the first person said. Spotify’s performance is in the top quartile of companies trading on secondary exchanges, he noted.

Stocks trending up in the private market have historically fared “pretty well” on the public exchanges, the person said. But the participants and volume of trades are dramatically different so Spotify’s performance in the private markets isn’t predictive to how it will perform publicly, he cautioned.

Spotify’s valuation should continue to rise, said the sector advisor, especially if it reaches an agreement with TPG Capital about the terms of the buyout group’s USD 1bn in convertible debt it issued last year.

New royalty agreements and impressive subscriber growth are underpinning the sunny outlook for the music streaming company, the advisor said. Spotify announced in July that it reached 60m paying users.

GP Bullhound, a London-based investment bank that backs the Swedish firm, issued a report this week that predicted Spotify’s valuation could hit USD 20bn by the time it goes public and USD 55bn by 2020.

Since it was founded in 2006, Spotify has raised more than USD 1.5bn in total equity from backers such as Goldman Sachs, GSV Capital, Halcyon Asset Management, Kleiner Perkins Caufield & Byers, Northzone, Senvest Capital, Technology Crossover Ventures, and Wellington Partners.

Morgan Stanley, Goldman Sachs and Allen & Company are advising Spotify on its direct listing.

by Troy Hooper in San Francisco and Tim Leemaster in New York

As seen in the Mergermarket, an Acuris company, newsletter on 24/10/2017

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