Spotify IPO qualified success, but excess sellers crashes price

Spotify duly went public and it was fairly clear that the appetite for holding the stock was exceeded by the supply of shares.

It made it possible that 55.7 million shares, out of 178 million were “allowed” to be sold, just under 31% of the company, by investors and insiders, and during the first day the stock began at $167.7 and slowly slipped as 30 million shares were absorbed by the market and began trading a day later around $141. You cannot just go one way with stocks – selling – without the share price falling.

The company reached a valuation of $29.9 billion during the day, and has now fallen to something closer to $25 billion, still on the high side of most estimates and bang-on our own estimate. Most funds will have be able to get as much stock as they need for now during that first day of trading and it will take time for further appetite to emerge as the company files results or does deals.

The company did not raise any money, and merely allowed this IPO as a direct sale from shareholders. It has $1.5 billion in the bank, and at the current trading level that represents enough for it to survive for 4 years, at the current rate of losses. Spotify lost $378 million last year, even more than the prior year.

The company has 2017 revenues of $5 billion up 38% and 71 million premium subscribers, despite the emergence of serious competition by Apple Music. There is a constant wave of criticism from rights holders about how much Spotify pays for music rights and unproven public speculation that Spotify interferes with playlists in order to lower its royalties.