- It was recently reported that Spotify confidentially filed initial public offering documents at the end of December as it pursues a so-called “direct listing.”
- Spotify is perfectly positioned to effectively use a direct listing due to its unique combination of name-brand recognition and an already-massive private market valuation.
- Just because Spotify is doing a direct listing doesn’t mean other companies should follow suit. It’s a risky process, and one not built for everyone.
- “When we think about why companies go public, they do it for liquidity, to raise their profile, for capital,” John Tuttle, head of global listings at NYSE, told Business Insider. “But for those companies that are well-capitalized, all they really need is liquidity.”
Spotify is entering uncharted waters as it attempts to go to market without a traditional initial public offering — but its approach isn’t as crazy as it seems.
At the core of the company’s so-called direct listing is an enviable combination of two main factors: (1) huge name-brand recognition and (2) an already-massive private market valuation. Those put Spotify into rarefied air, giving it flexibility to pursue a public offering in a way that’s not usually seen.
In order to fully comprehend what Spotify is doing, it’s important to understand the mechanics of a direct listing, how it differs from a normal IPO and, perhaps most importantly, the rationale for doing one. That goes a long way towards explaining why it’s so rare for a company to do one.
Here’s a handy guide to understanding the method behind Spotify’s move:
What is a direct listing?
Kathleen Smith, principal of Renaissance Capital, said recently that doing a direct listing is like opening a store and hoping people will just stop by. Erin Griffith of Fortune once cleverly said that Read More Here