Music Service Spotify Just Filed for a ‘Direct IPO’

  • Spotify filed the paperwork to list shares on the New York Stock Exchange.
  • The company is planning to do a “Direct IPO” which bypasses the typical Wall Street process.
  • Spotify is the largest music streaming service with 71 million paid suscribers.

Spotify has filed paperwork for a direct public offering, a risky and unusual process to quickly list its shares as it races with Apple to become the de-facto standard in the fast growing music streaming business.

The 10-year-old Swedish company filed an F-1 prospectus with the SEC on Wednesday for the offering. Spotify plans to list shares on the New York Stock Exchange under the ticker “SPOT.”

Spotify pioneered the music streaming business, which has overtaken digital downloads, as well as the ravaged CD business, to become the largest segment of the music industry in the US.

With 71 million paid subscribers, Spotify is currently the world leader, but it is facing stiff competition from Apple, whose three-year old Apple Music service has already racked up 36 million subscribers. Google and Amazon are also pushing their own streaming music services.

That competition has forced Spotify to spend heavily on music licensing, to maintain a broad catalog of music, as well as on marketing and R&D. The spending has resulted in hefty and growing losses. In 2017, Spotify said it had a net loss of €1.2 billion ($1.5 billion USD), compared to a net loss of €539 million the year before.

The company’s revenue increased 39% year-on-year in 2017, totaling roughly €4.1 billion, or $5 billion.

Spotify is offering its shares directly to investors, bypassing the typical Wall Street process where banks are hired to find buyers for the shares. Its F-1 filing listed a valuation of $1 billion, though that figure is likely a placeholder number that could change as the offering gets closer.

The direct IPO means that Spotify will sell shares without a set price, without a set level of supply of shares, and without a lock-up on existing investors. And the lack of the so-called “bookbuilding” process typically handled by underwriters means that Spotify’s stock won’t have a safety net if investors turn sour on the company.

“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,” Spotify warned in its prospectus.

This post originally appeared on Business Insider.

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