No bell-ringing, no problem: A look at Spotify's unusually transparent IPO

The music-streaming brand worked with Brunswick, H+K, and Trailrunner International as it went public.

Photo credit: Getty Images
Photo credit: Getty Images

NEW YORK: Spotify’s decision to direct list wasn’t the only unique thing about its initial public offering. Its communications in the lead-up to its debut as a public company were also uniquely transparent, according to financial communications experts.

The process before an IPO is typically carried out behind closed doors, with institutional investors and Wall Street getting first access. Yet in this case, a direct listing allowed mainstream investors to participate while the brand eschewed hefty bank fees, a lock-up period, and an investor roadshow.

Spotify’s cash-positive status allowed it to bypass the need to raise capital from Wall Street. It also didn’t need to do a roadshow because "investors were familiar with the company and what it does," said Ryan Barr, U.S. MD of Cognito.

Shaped by this different dynamic, Spotify could communicate transparently well before going public, Barr added.

Nearly a year after reports surfaced that Spotify would direct list, the company held a livestreamed investor day last month, a Q&A, and "allowed for information to get out to a broader audience than a typical roadshow," Barr says.

"Doing an investor day weeks before IPO is not just something unheard of, it’s not something companies can do," he explained. "Because it was a direct listing, [Spotify] had the ability to do it. I struggle to think of a company that’s done something like it."

The company also targeted a different type of audience.

"Spotify’s team made the IPO a true marketing event, not a cookie cutter Power Point aimed at institutional investors only," said Elizabeth Saunders, partner at Clermont Partners, via email. "Unique videos from their investor day hit key investment appeals and brilliantly defined the industry, Spotify’s dominant position, and what’s next."

Many companies that go public embark on a media tour, but Spotify shunned the pomp of ringing the opening bell at the New York Stock Exchange. The company held one interview with CBS News’ Gayle King but declined to participate in a Wall Street Journal profile of CEO Daniel Ek.

Ek penned a blog post stressing Spotify’s unusual nature. "Normally, companies ring bells. Normally, companies spend their day doing interviews on the trading floor touting why their stock is a good investment. Normally, companies don’t pursue a direct listing," he wrote. "While I appreciate that this path makes sense for most, Spotify has never been a normal kind of company."

Some parts of the process were less clear. The small volume of trades, 5.6 million, during Spotify’s first day as a public company raised a red flag for Shira Ovide, a Bloomberg Gadfly columnist. The relatively small number could obscure the real valuation of the company, Ovide wrote in her column.

Ovide told PRWeek that this confusion could be settled if the New York Stock Exchange or Spotify disclosed how many "unique shares are available [for trade]," a number that would be available in a conventional IPO.

However, Spotify’s investors have been trading stock for some time, she notes. The company disclosed the prices of stock transactions and number of shares sold during 2017, which allows the public to calculate the "implied valuation of the company."

"To Spotify’s credit, they were very transparent with the amount of activity and prices of stock purchases and sales in the 18 months before it went public," she says. "I don’t think I’ve ever seen a company do that as they prepared to go public."

Spotify, where communications strategy was led by global head of comms and PR Dustee Jenkins and head of Americas comms Graham James, retained Brunswick Group, Hill+Knowlton Strategies, and TrailRunner International in the months before the IPO to lead corporate and business comms, according to a source familiar with the transaction.

An up-and-down week on Wall Street
Spotify went public during a roller coaster week for the stock market. The combined effect of President Donald Trump’s trade war threats with China and his attacks on Amazon triggered a sell-off on Monday. On Wednesday, the Dow Jones Industrial Average dropped precipitously at its open only to rebound and close the session with a net gain.

After popping on its first day on the market, Spotify’s share price was down on Tuesday but rebounded late Wednesday.

Yet Barr said Spotify investors aren’t holding on to their stock for earnings per share; they’re in it for growth.

"[Spotify leadership] correctly assumed tech IPO buyers would be less concerned about profitability and more focused on metrics that support future growth," Saunders says. "The sell side doesn’t think Spotify has been transparent because they aren’t giving narrowly focused financial guidance. I really believe companies are moving away from financial guidance, and Spotify is showing us a company can be transparent without it."

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