Spotify, the music streaming service with 60 million paying subscribers, is set to go public next year with a stock offering that may challenge Wall Street’s traditional methods, according to The Wall Street Journal. The company’s IPO is being watched closely by other tech companies.
Spotify plans to offer shares through a “direct public offering” that eliminates an investment bank acting as a middleman between the company and new investors. A DPO would save the company the typical 7 percent underwriting fees. In the case of Spotify, the savings could be as much as $300 million it doesn’t have to fork over to Wall Street banks.
In a conventional initial public offering, investment banks seek to allocate shares to long-term shareholders (although in reality, banks can also favor big clients by granting them underpriced shares they can quickly dump during the first few days of trading for a quick profit). Early-stage investors also typically agree to hold their stock for a lockup period to help stabilize the price.
When Google went public, the company tried to include small investors by seeking bids through an auction-like algorithm, but bigger investors refrained from jumping in. The company cut the asking price to bring investors back to the bargaining table.
‘Google’s failure to break the mold paved the way for years of conventional IPOs in an industry that only got keener on disruption,” writes Stephen Wilmot in the Journal's "Heard on the Street" column. “Much could ride on Spotify’s direct listing, including Wall Street’s underwriting fees. If it works, Uber and Airbnb and any other tech group with a consumer brand will be tempted to follow suit.”
A U.S. appeals court on Tuesday revived a lawsuit accusing Alibaba Group of defrauding shareholders by hiding a regulatory warning about counterfeit goods the retailer had received shortly before going public, Reuters reported.
The 2nd U.S. Circuit Court of Appeals in Manhattan ruled 3-0 that a lower court judge erred in dismissing claims by holders of Alibaba's American Depositary Shares and ADS call options against Alibaba, Executive Chairman Jack Ma and others.
Alibaba had no immediate comment. The company has long faced accusations that its websites are a haven for counterfeit goods, including luxury products.
Shareholders accused Alibaba of concealing a meeting on July 16, 2014, two months before its $25 billion initial public offering, in which China's powerful State Administration for Industry and Commerce threatened huge fines if Alibaba failed to suppress counterfeiting.
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