Spotify's Direct-Listing IPO - Case Solution
Early in the second quarter of 2018, Spotify Technology SA (Spotify) was planning to directly list on the New York Stock Exchange (NYSE). This is such a rare move for any company as it allows participants to provide a determination of the initial price. How would a portfolio manager who is planning to invest in the firm come up with an estimate for Spotify's value?
Case Questions Answered
- Describe the financial background and business strategy of Spotify.
- Explain the array of going public options available to Spotify and the pros and cons of each option.
- Explain the main issues and challenges that the managers of Spotify had regarding the direct listing within the US regulatory framework and NYSE listing rules.
- Explain whether targeting only very high-net-worth investors would be enough.
- Discuss how Spotify's management having no role in the initial pricing of shares, along with the recent market turmoil around the time of the listing, may have influenced the investment decision of institutional investors.
This case solution includes an Excel file with calculations that will be available after purchase.
This case solution includes an Excel file with calculations.
Overview – Spotify’s Direct-Listing IPO
Spotify – Swedish Unicorn: Connecting artists with fans with content in one place. It features rankings and recommendations and is available for online listening and/or downloading.
Spotify’s mission:
Our mission is to 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 it.
The Company – Spotify
Spotify’s milestones
Financial background
Business strategy
Business Model
- Free music with ads
- A premium plan for a subscription fee
- Data collected from users
- Royalties for artists
- Playlists created by users
Additional Secret Features (Secret Sauce): Freemium model, Facebook integration, Algorithmic playlists
SWOT Analysis – Spotify
Strengths
- Being a game changer in the music market
- Strong brand, well recognizable
- Freemium business model
- Personalized services, use of an algorithm
- Possibility of offline listening
- Marketing using user’s data
Weaknesses
- Dependence on Internet connectivity
- High royalty fees for artists
- Premium service is costly for users
- Smaller music catalog compared to some competitors
- Legal issues with artists
Opportunities
- Video streaming
- Expanding podcasting market
- New business strategies in the music industry
- Partnerships with famous artists
- Possible brand extension
- Social network potential
Threats
- Insufficient revenue, Net loss
- Growing competitors (Apple Music, Sound Cloud, Pandora, Amazon)
- Low price increase potential, lesser lowering cost potential
- Disputes with artists and criticism
Going Public
Available Strategies for Spotify
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