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Wall Street Journal / Biz - Money

Spotify Files to Go Public Through Direct Listing, Cutting Out Underwriters

Spotify has confidentially filed paperwork with the Securities and Exchange Commission to list its shares on the New York Stock Exchange.


By

Maureen Farrell and

Anne Steele

Spotify AB has confidentially filed paperwork with the Securities and Exchange Commission to list its shares on the New York Stock Exchange, according to a person familiar with the listing.

This SEC filing is the latest key step in Spotify’s plans to go public using an unusual method known as a direct listing. That listing won’t be an initial public offering, as Spotify won’t seek to raise money as it goes public.

Spotify’s most recent valuation was nearly $20 billion, based on a recent share swap between Spotify and Chinese internet giant Tencent Holdings Ltd. While it is unclear how public investors will value Spotify, a $20 billion valuation would make Spotify one of the largest technology companies to debut on a U.S. exchange since Facebook Inc. Spotify was valued at $8.5 billion during a private capital injection in 2015.

The Swedish company has been targeting March or April for its debut, according to people familiar with the matter.

If the debut goes well, it could encourage other highly valued and cash-rich startups, such as Airbnb Inc., to pursue direct listings, people familiar with the matter have said.

Late last year, Spotify received approval from the SEC to move forward with a direct listing on the NYSE. The SEC had concerns that Spotify’s direct listing could open the door for other companies with potentially risky financial profiles to access the public markets without giving investors sufficient protection, people familiar with the negotiations said.

Axios reported earlier Wednesday that Spotify had filed confidentially with the SEC.

Launched in 2008, Spotify lets users listen to a library of more than 30 million songs on demand. Subscribers who pay around $10 a month can listen without hearing ads; users of the free version need to sit through ads and have more limited ability to pick the order in which they hear the songs they select. As of June, Spotify said it has 140 million active users world-wide, 60 million of whom pay.

The music industry has widely credited Spotify and other subscription-streaming companies with helping to reverse a long slide in revenue. The three global music companies—Vivendi SA’s Universal Music Group, Sony Corp.’s Sony Music Entertainment and Access Industries Inc.’s Warner Music Group—received equity stakes in Spotify as part of deals to license their catalogs to the Sweden-based company.

Spotify has reported limited financial results, which have shown losses for several years running.

In a direct listing, a company transfers its shares to an exchange without raising money as is done in a typical IPO. Companies have shied away from the unusual process in part because there is a greater risk that the shares could flop since there are no underwriters to set and prop up the price.

The listing is being used as a way for Spotify to give existing investors the chance to cash out but not to raise additional funds. New investors will be able to buy shares once they start trading.

Among the draws of a direct listing: They enable companies to save on the hefty underwriting fees associated with traditional IPOs, and there aren’t restrictions on when insiders can sell shares.

Spotify has been hit recently by a raft of copyright-infringement lawsuits filed by songwriters and music publishers, though a person familiar with the matter said the suits won’t affect the timing of Spotify going public.

One suit, filed by Wixen Music Publishing, which controls compositions by Tom Petty, Steely Dan, Neil Young and others, alleges Spotify isn’t licensed for tens of thousands of songs it streams on its service, and isn't properly compensating the musicians who wrote them. The lawsuit is seeking at least $1.6 billion in damages.

In May, Spotify reached a proposed $43 million settlement in a lawsuit seeking class action that is pending judge approval; Wixen is also leading a move by several major artists to object. The most recent suit, filed Dec. 29 and made public Tuesday, follows a pair of similar suits filed in July.

Write to Maureen Farrell at maureen.farrell@wsj.com and Anne Steele at Anne.Steele@wsj.com

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