Spotify, the popular music streaming service, has gone public. On April 3, 2018, Spotify opened at $165.90 per share, which valued the company at $29.5 billion. This exceeded industry expectations, as early estimates valued the company at $20 billion. While this particular IPO is attracting media attention due to Spotify’s ubiquity, investors should know two things about the IPO before purchasing shares: it is a direct listing with a dual-class structure.
First, Spotify decided to go public by directly listing its shares on the New York Stock Exchange. This was not a conventional decision. When comparably sized companies decide to go public, they typically work with large banks to underwrite their public offerings. This helps ensure that their share prices remain stable until the market settles on a price. However, Spotify chose to forgo this step (and its requisite banking fees), instead selling its shares directly to shareholders. Investors should therefore perform adequate due diligence before investing in Spotify, especially until it becomes clear that its share price has stabilized.
Second, Spotify, like Facebook and Alphabet, will have “dual-class structure” under this IPO. Under this structure, its two founders will retain 80.4% of the voting control of the company. This will permit them to take advantage of the benefits of being publicly traded (e.g., access to capital) without ceding control of the company’s management. Therefore, before investing, investors should research Spotify’s management to ensure they feel comfortable giving away this power.
Spotify is trading on the NYSE under the symbol SPOT.
About Faruqi & Faruqi, LLP
Faruqi & Faruqi focuses on complex civil litigation, including securities, shareholder derivative actions, merger litigation, antitrust, employment law, wage and hour, and consumer class actions. The firm is headquartered in New York, and maintains offices in Delaware, Pennsylvania, California, and Georgia.
Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.
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About Dillon Hagius
Dillon Hagius’s practice is focused on securities litigation. Dillon is an associate in the firm’s New York office.