Spotify is making its shares available to the public through a direct listing whereby it sells only existing shares, instead of raising money by selling new shares. Given the company’s 11-digit valuation measured in the tens-of-billions of dollars, the listing has become as much a curiosity to Wall Street as it is the to fans who want to buy a piece of the streaming music soon-to-be-ex-unicorn.
Speculation as to exactly what will happen and what could go wrong abound.
Spotify recently added a risk disclosure to its prospectus highlighting the possibility of increased volatility, as there will be no investment bank, which typically acts as a stabilizing agent. But it’s not as though Spotify’s shares will be blowing in the wind.
Spotify has retained Morgan Stanley as its financial advisor and Citadel Securities as the company’s designated market maker (DMM). As one of only five remaining DMMs at NYSE, Citadel will be responsible for determining the opening price and literally—as the job name implies—making a market for the security.
There’s a lot that can go wrong the first day of trading, and negotiating the opening trade typically takes several hours for a large listing. For a normal IPO, the DMM consults with the investment bankers (usually there are several), weighs the order flow (bids and offers), taking into consideration the IPO price (usually fixed the night prior), and eventually executes a trade.
Because it’s not selling any new shares, Spotify doesn’t have an IPO price and doesn’t have an underwriter, or investment banker. But Morgan Stanley and, particularly Citadel, are staking their reputations on ensuring there’s an orderly market for Spotify’s shares—especially the first day.
And simply because there’s no underwriter doesn’t mean Spotify has foregone the entire Wall Street dog and pony show. According to Keith Bliss of Cuttone and Company, Morgan Stanley has been road showing the company for three weeks.
“The feedback has been mostly positive from the institutional community—on not only the company, but also the direct listing process,” says Bliss.
Wall Street may not be getting its typical allotment of fees and greenshoe shares, but interest in the mega-listing remains solid.
As for that opening price, all eyes are fixed on Citadel.