Advisor gives his verdict of leading music streaming company’s first day of trading
Spotify’s assured debut on the stock market yesterday showed that growth is top of investors' agendas, according to one advisor.
The music streaming service, which is not yet profitable but has 71 million worldwide subscribers, opted to sell its Spotify Technology SA shares via a direct listing rather than a traditional IPO.
In a drama-free maiden day of trading, it opened after noon at $165.90 apiece in New York. After 5.6 million shares changed hands at that initial price it pulled back about 10%, closing at $149.01 to leave the company vakued at $27 billion.
While a 30% increase is the usual benchmark for a successful first day, Michael Currie, vice-president and investment advisor at TD Wealth, said Spotify is a unique story as they are not raising money.
“The market over the last two years has been all about growth,” he said. “Growth stocks have been massively outpacing the value stocks, especially in the States and that’s what people are looking for, especially when rates are rising.
“Dividend stocks then become less attractive; growth is where people want to put their money. That’s why we hear the FAANGs all the time are the hot stocks and what’s leading the market.
“Spotify is a company that is growing quite rapidly - 71 million paid subscribers, 160 million users - and they are the leader in the industry with almost double what Apple has.
“So the growth is the real story behind this one. Even though they’ve got a loss right now, they are going to be able to monetise some of those subscribers.”
Currie, a subscriber himself, acknowledged the company’s $460 million loss, although he added that investors should also look at the $5 billion in revenue.
He said: “Right now, just being so new [on the market], it’s a little on the riskier side, being a tech stock and still having a loss. But this is a sizeable operation with a decent history behind it.
“As long as investors bear in mind they are not making money right now, it’s a pretty solid company.”
The final share price was more in line with expectations after a strong start, although the company itself had sent signals that it wanted a low-key entrance to the market; an indicator that it currently remains more committed to adding subscribers than profits.
Currie said: “Even though it’s a super company growing at a good pace, they still lost $460 million last year. But it’s very popular, very well-known and there was going to be a lot of retail people wanting to get in on it.
“The bigger story was it was fairly steady. It opened fairly smoothly, there was no big panic buying or selling and it kind of went as people expected. For something a little bit unusual on the market, I think everyone has got to be happy with how it turned out.”