Spotify's direct public offering is set for Tuesday morning, and tech companies, traders and investors will be watching to see how the company's "novel method" for going public goes.
The firm is listing on the NYSE without underwriters, without a set price, without a set level of supply of shares, and without a lock-up on existing investors.
Daniel Ek, chairman and CEO of Spotify, addressed Spotify's unusual method for going public in a note on Monday, setting out why Spotify is doing things a little differently. He said:
"Normally, companies ring bells. Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. Normally, companies don’t pursue a direct listing. While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company. As I mentioned during our Investor Day, our focus isn’t on the initial splash. Instead, we will be working on trying to build, plan, and imagine for the long term."
Here's how the process differs:
No set price range:
Spotify's planning on using private market transactions to guide shareholders towards an opening public stock price. Still, the range for private transactions between January 1 and February 22 was $90 to $132.50, a wide range. (Mark Mahaney, analyst at RBC Capital Markets, has a $220 price target on the stock.)
From Spotify's F-1 filing:
"This lack of an initial public offering price could impact the range of buy and sell orders collected by the NYSE from various broker-dealers. Consequently, the public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly."
No set supply:
There also isn't a set supply of securities available. From the F-1 filing:
"There is not a fixed number of securities available for sale. Therefore, there can be no assurance that any Registered Shareholders or other existing shareholders will sell any or all of their ordinary shares and there may initially be a lack of supply of, or demand for, ordinary shares on the NYSE. Alternatively, we may have a large number of Registered Shareholders or other existing shareholders who choose to sell their ordinary shares in the near-term resulting in oversupply of our ordinary shares, which could adversely impact the public price of our ordinary shares once listed on the NYSE."
No lock-up:
And key existing shareholders aren't barred from selling shares with the exception of TME and Tencent, as they normally would be.