![]() AdvantagesĪs Spotify’s direct listing demonstrates, there are many advantages to a direct listing. The following list of advantages and disadvantages can help your company determine whether a direct listing is right for you. While Spotify’s direct listing was successful, it may not be the best option for other companies. After price discovery during the morning, shares opened at $165.90 and closed at $149.01, up 12.8% from the initial reference price of $132.00. Trading began on the NYSE on April 3 and experienced much lower levels of volatility in the weeks following the direct listing than was expected. Spotify also issued earnings guidance on March 26 and waited a week to list, letting the information season with investors. Instead of a roadshow, Spotify hosted an “Investor Day” on March 15 to educate investors about the company. This form includes most of the same information required by an S-1 in a traditional IPO. After receiving confirmation that the direct listing would be allowed, Spotify publicly filed the foreign equivalent of the Form S-1 (Form F-1) on February 28. ![]() The rule change specified that the NYSE could list a private company’s shares solely on the basis of a recent third-party valuation of at least $250 million. The NYSE had to propose a rule change with the SEC to allow Spotify’s direct listing. First, Spotify had to ensure that it met the listing requirements of its chosen exchange-the NYSE. The most important events related to Spotify’s direct listing are noted on the timeline below.īecause direct listings are uncommon, the process was not well defined. Despite these advantages, Spotify was worried that trading would be highly volatile without an underwriter to stabilize prices. As a well-known brand used by millions of people, Spotify did not require as much publicity to make potential investors aware of its listing. Spotify was attracted to a direct listing because the company was not in need of additional capital and management believed that the process was more fair and transparent than a traditional IPO. In fact, MarketWatch identified only 11 direct listings in the 20 years prior to Spotify’s direct listing 1. Case Study: Spotifyīefore the high-profile direct listing of Spotify in April 2018, direct listings were a relatively unutilized and unknown path to becoming a public company. This article describes a recent example of a direct listing and then examines the advantages and disadvantages of a direct listing in comparison to the traditional IPO process. Once a company’s shares are listed, current shareholders, such as owners, employees and venture capital firms, can choose to sell their shares on the exchange. In a direct listing, a company becomes public by listing on a stock exchange without selling shares directly to the public. A direct listing, also called a direct placement or direct public offering (DPO), is an innovative alternative to a traditional IPO. When deciding whether an IPO is the right step for your company, you may want to consider other alternatives to going public such as a direct listing.
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