Spotify Registers With SEC For Direct Listing


spotifyStreaming giant Spotify has filed an F-1 form with the Securities Exchange Commission, in preparation to begin listing shares on the New York Stock Exchange under the symbol SPOT. Shares traded privately since January 1 2018 between $90.00 and $132.50 USD. Shares are expected to undergo a 40:1 split to “reduce the price per share […] to a more customary level for a newly listed company” (Spotify F-1 p. iv).

This move comes on the heels of early January speculation, and with a $1.6B copyright lawsuit from Wixen Music Publishing still hanging over them.

The filing is under Rule 415 of the Securities Act of 1933, which is also called a shelf registration. This means that Spotify has two months to start selling shares from the time the statement is declared effective. Once public, they can be issued and sold on a continuous basis. This is not a normal way for a company to go public; most go the route of an Initial Public Offering (IPO).

Factors listed as potential threats to forward-looking information that really stand out are:

  • “[Spotify’s] ability to comply with the many complex license agreements to which [they] are a party;
  • [Spotify’s] ability to generate sufficient revenue to be profitable or to generate positive cash flow on a sustained basis;
  • assertions by third parties of infringement or other violations by [Spotify] of their intellectual property rights;
  • risk associated with [Spotify’s] substantial indebtedness;
  • the concentration of voting power among our founders who have and will continue to have substantial control over [Spotify’s] business.” – (p. iii)

Interestingly, while revenues for Spotify have increased from $1.94B to $2.95B to $4.09B for 2015, 2016 and 2017 respectively, they still incurred net losses of $230M, $539M and $1.235B for the same years. Despite this, they are optimistic for the future, reporting total users of 159 million, including 71 million premium accounts. They approximate this to be double the users that their biggest competitor Apple Music has.

They are looking to capitalize on the “universality of music […] to reach many of the over 3.6 billion internet users globally” (p. 2). To this end, an agreement was reached with Tencent Holdings Limited, a Chinese social network operator with a majority stake in Tencent Music Entertainment, a digital music service in China. Deemed the “Tencent Transactions”, Spotify believes they will “allow [them] to invest in the long term potential of the music market in China, and, in turn, TME to invest in the long term potential of the music market outside of China” (p. 8).

Spotify relies on the uniqueness of their product to remain competitive, citing the personalized experience driven by their powerful music search and discovery engines, user engagement, and their playlists driving user discovery (p. 3). Valuations on the shares grew approximately 140% from February 2017 ($50.70/share) to December 2017 (120.50/share).

A letter from co-founder, CEO and Chairman Daniel Ek (p. 92) details his inspiration for the company and his designs for the future. Bolded excerpts:

“That’s our mission – to unlock the potential of human creativity – by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it. We know that if we’re going to succeed as a company and as an industry, we have to think, build, plan, and imagine for the long-term. That’s because the future is markedly different from the past. We’re working to democratize the industry and connect all of us, across the world, in a shared culture that expands our horizons. To get there, we need transparency. We need discovery. We need new tools of creativity. And when we get there, the possibilities for culture will completely change. Again. We really do believe that we can improve the world, one song at a time