Spotify: IPO by Owner

Spotify had it’s IPO and yes I’m in!  In a rare move, they listed directly on the exchange with no bank to stabilize the release.  The executives didn’t even show up to ring the opening bell.  Unconventional is an understatement.  Keep reading to see if I made any money and what the future brings.


Spotify: Direct list IPO

Spotify, the most popular music streaming company in the world, had its IPO this week.  An IPO is an Initial Public Offering, making the jump from a privately own company to a publicly traded company.  They broke all the traditions by listing directly on the New York Stock Exchange (NYSE).  Spotify didn’t raise any money on their IPO, either.  Despite the fact that this is one of the most anticipated IPOs of the year, the executives did not come to the exchange to ring the opening bell and participate in the usual festivities.  For Spotify, it was another day at the office.  For Wall Street, it was a big deal.

In a typical IPO, a bank will essentially buy all the shares from the company for an agreed upon price, then list them to an exchange for a higher price.  Markets, as we all know, are volatile and the banks making these IPOs take a lot of risks but have a chance to reap huge rewards.  Many times the banks processing the IPO can pocket billions of dollars on the day of the IPO.  The best way to think about these banks is like a real estate agent, they handle all the paperwork and legality in exchange for the opportunity to make large profits.  One more thing to note, most of the time, the early investors in the company can’t sell their shares for a set amount of time, typically 60-90 days.  This helps stabilize the price in the early days of trading.

One main advantage of having a bank list your shares to an exchange is they will release them and buy them back to help keep the price stable in the first few days and weeks.

Direct Listing

Spotify has many investors who already held shares on a private market; reports stated that they were trading between $132 – $138 per share prior to the IPO.  Spotify did not sell any of the equity it held on the day of the IPO.  Therefore, Spotify did not raise any money.  They said they had enough cash on hand and don’t need more right now.  I took this as a positive sign that the management team believed they were close to being profitable.

Since there was no bank to list the shares and Spotify had no shares to sell, it was left to the early investors to sell their shares.  Early investors included large banks like Goldman Sachs and media companies like Sony.  There are many private individual investors, too.  For this IPO it is up to the early investors, individuals and organizations, to sell their shares so investors in the public exchange, you and me, can buy them.

The Day of the Listing!

4/3 started off with stocks opening higher than the previous day’s close.  The NYSE listed the symbol SPOT and set a beginning price at $132.  As with most IPOs, no shares were available to trade immediately after the opening bell.  As the morning wore on, the anticipated opening price began to rise, $140, $150, $160 and finally to $170.  When the shares first became available at 12:40 PM the opening price was just above $165 per share.  The price went up to $169 within the first 5 minutes.

Quickly, the price began declining.  Several traders I know eyed the $150 mark as a good buy-in point.  I was more cautious, I set a limit order for 56 shares at a price of $140.  My thought process was that since on the private market the highest price reported was $138, it would be a good value in that area.  It took every nerve in my body to not buy any shares on that opening day.  The price closed at about $150.

4/4 my bet came through!  The next morning the stock opened lower, right at $140!  My order was executed and I am the proud new owner of 56 fresh shares of SPOT, my total cost was $7,844.95.  The price did dip lower to almost $135 the same day but it closed at $146.  I was in the black already!  At writing the price seemed to have found a home between $150 & $155.  My profit is around $700 right now.

Final Thoughts

I did make many other trades this week but decided to highlight only the most significant one.  Here are links to all my transactions and my current holdings.  You can see every move I’ve ever made there.

I was very pleased with my discipline and ability to stick with my original plan and not follow others.  Had I bought SPOT at $150 I would have left $560 on the table.  Sticking with my original plan helped me make a better trade and be more profitable on this odd IPO.

Feel free to ask questions in the comment box below.

Thanks for reading and Happy Trading!

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