The market for initial public offerings has many unicorns and many well known companies that it has been waiting on to come public. One of the most telegraphed IPOs of 2018 was expected to be Spotify Technology S.A.  And now Spotify has formally filed for an initial public offering with the Securities and Exchange Commission. Its filing is fpr up to $1 billion in ordinary shares. It plans to list under the “SPOT” stock ticker on the New York Stock Exchange. No underwriters are being named.

Investors are going to want to pay attention here to the details. This is not your normal IPO filing.

While everyone knows Spoify by name, it claims to be the largest global music streaming subscription service and believes it is roughly twice the size of Apple Music. Its premium service provides Premium Subscribers with unlimited online and offline high-quality streaming access to its catalog. The ad-supported service has no subscription fees and provides ad-Supported Users with limited on-demand online access to its catalog. Spotify has a presence in 61 countries and territories, with a platform including 159 million monthly active users and 71 million premium subscribers as of December 31, 2017.

Each outstanding ordinary share entitles the holder to one vote, and Spotify has issued 10 beneficiary certificates per ordinary share held of record to entities beneficially owned by the founders, Daniel Ek and Martin Lorentzon, for a total of 379,201,200 beneficiary certificates. The lockup agreements here are also rather unique.

Spotify first launched its service in 2008. Music industry revenues had already been in decline. To that point, total global recorded music industry revenues falling from $23.8 billion in 1999 down to $16.9 billion in 2008. From 2008 to 2014 those revenues continued to decline down to $14.3 billion in 2014.

While there is no public market for Spotify shares now, the ordinary shares have a history of trading in private transactions. The low and high sales price per ordinary share for such private transactions during 2017 was as low as $37.50 and $and as high as 125.00. During the period from January 1, 2018 through February 22, 2018 that was $90.00 on the low end and $132.50 on the high end — excluding the Tencent transactions.

Unlike traditional IPOs, Spotify is not going to have underwriters. The filing said:

The listing of our ordinary shares on the NYSE without underwriters is a novel method for commencing public trading in our ordinary shares, and consequently, the trading volume and price of our ordinary shares may be more volatile than if our ordinary shares were initially listed in connection with an underwritten initial public offering.

Below is a representation of its most recent financial history:

• For the years ended December 31, 2015, 2016, and 2017, it generated €1,940 million, €2,952 million, and €4,090 million in revenue, respectively, representing a CAGR of 45%.
• For the years ended December 31, 2015, 2016, and 2017, it incurred net losses of €230 million, €539 million, and €1,235 million, respectively.
• For the years ended December 31, 2015, 2016, and 2017, its EBITDA was €(205) million, €(311) million, and €(324) million, respectively.
• For the years ended December 31, 2015, 2016, and 2017, net cash flow (used in)/from operating activities was €(38) million, €101 million, and €179 million, respectively.
• For the years ended December 31, 2015, 2016, and 2017, its Free Cash Flow was €(92) million, €73 million, and €109 million, respectively.

While Daniel Ek and Martin Lorentzon are the primary shareholders, Sony Music Entertainment has a 5.7% stake, Another 5.4% stake is held by TCV, another 6.9% is held by Tiger Global, and another 7.5% stake is held by Tencent.

Full details on the Spotify IPO can be found in its filing below.

FULL IPO FILING

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