Spotify Is Said to Be Going Public in Early 2018

Posted January 3, 2018 7:15 p.m. EST

Spotify is finally ready to go public.

The streaming music giant filed a confidential registration with the Securities and Exchange Commission in late December, with the intention of listing its shares on the New York Stock Exchange in the first quarter of this year, according to two people briefed on the company’s plans who were not authorized to discuss them.

As expected, Spotify will pursue a direct listing of its shares, an unusual process in which no new stock is issued — and therefore no money is raised — but existing investors and insiders can trade their shares on the open market. Such a listing would bypass much of the bureaucracy of a standard initial public offering, saving the company time and potentially millions in underwriting fees.

The move, if it goes forward as planned, would be the most prominent music-related listing since Pandora Media’s initial public offering in 2011, and would recognize Spotify, which began its service 10 years ago, as a transformative force in the music industry. After some 15 years of decline, revenues of recorded music sales began to recover in 2015, largely thanks to streaming.

Spotify’s registration was previously reported by Axios.

A Spotify spokesman declined to comment.

When it last raised money from investors, in 2015, Spotify was valued at $8.5 billion. Its current valuation is not clear. According to reports, it has been valued at as much as $19 billion, based on private transactions.

In the United States, streaming services like Spotify, Apple Music and Amazon Music account for more than two-thirds of the business, according to Nielsen, and are still growing rapidly. According to BuzzAngle, another music data tracker, American listeners streamed 377 billion songs last year, up 50 percent from 2016.

Spotify is by far the most popular audio streaming outlet, with at least 60 million paying subscribers around the world and an additional 80 million who use its ad-supported free version, according to the company’s most recent public statements. Apple says it has at least 30 million subscribers to its Apple Music service, which is available only by subscription.

Despite Spotify’s size, it has never turned a profit, and music licensing costs are still its greatest expense. In 2016, Spotify had about $3.3 billion in revenue, up 52 percent from the year before, but its net loss also grew sharply, to about $600 million, according to its most recent filings with European regulators. The company is based in Sweden.

Spotify would be coming to the public stock markets at an auspicious time. Last year, 138 companies — including well-known ones like Snap Inc., the parent of Snapchat — went public, up 45 percent from 2016, according to data from Thomson Reuters. Together they raised $30.6 billion, roughly double the amount raised in 2016.

But last year’s burst of activity remained well below the decade-high mark set in 2014, as the ease of raising money in private markets has dissuaded big startups from pursuing IPOs. Companies like Uber and Airbnb have pushed off market debuts while amassing valuations that rival their publicly traded brethren.

What Spotify is doing is different, however, and has few precedents. Most companies that have pursued direct listings have been much smaller, with the exception of Freddie Mac in 1989. Dealmakers and analysts have said a direct listing is available to Spotify because of its already wide name recognition among potential investors, which makes the standard IPO meet-and-greets largely unnecessary.

A prospectus from Spotify, expected to be made public before the listing, would shine additional light on the company’s finances and on the economics underlying streaming music.

When Pandora went public, it, too, was buoyed by rapid user and revenue growth but dogged by a lack of profitability. Last year, short on cash and with its growth slowed, Pandora accepted a $480 million investment from SiriusXM that gave SiriusXM a 19 percent stake and three board seats. In 2017, Pandora’s stock lost 62 percent of its value.

Spotify is hoping to avoid that fate with newly renegotiated licensing deals with the major record companies that lessened Spotify’s royalty rates by a few percentage points, and by maintaining its growth around the world. The service is available in 61 territories, from Greece to Guatemala.

But while streaming has lifted revenues at the major record companies, which have minority stakes in the company, musicians and songwriters remain skeptical of Spotify’s model, and of their ability to earn livable wages from Spotify.

In late December, Wixen Music Publishing, which represents songs by Tom Petty, Neil Young, Stevie Nicks and other songwriters, sued Spotify in a federal court in California, accusing it of using thousands of songs without proper licenses, the latest in a string of such copyright suits. The suit asks for $1.6 billion in damages, $150,000 for each song.

Spotify had no comment on the lawsuit.