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Why Spotify decided to go public now

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Spotify provides joy on a daily basis for millions of people worldwide. Now, the music-streaming service is becoming a financial opportunity, not just a welcomed distraction. 
On Tuesday, Spotify began trading on the New York Stock Exchange under the ticker $SPOT. The stock opened at $165.9 per share, valuing it as $29.5 billion. Spotify’s decision to go public has been expected as a way to return capital to early investors, but it comes with wariness from Wall Street and from Silicon Valley.  

Spotify’s IPO has been unconventional by most industry standards. For example, the company didn’t work with bankers to sell shares through institutional investors. Instead, it’s completing a direct listing. Additionally, while traditional IPOs feature executives on the trading floor to ring the bell and speak with reporters on why the stock is a worthy investment, Spotify’s team was absent from the NYSE. 
According to Spotify CEO Daniel Ek, Spotify’s IPO doesn’t need to be a “splash.” As Ek wrote in a letter on the company’s blog:
“While tomorrow puts us on a bigger stage, it doesn’t change who we are, what we are about, or how we operate … Sometimes we succeed, sometimes we stumble. The constant is that we believe we are still early in our journey and we have room to learn and grow.”
For the tech industry, Spotify’s approach opens up the opportunity for other startups to avoid going the traditional route. That could mean fewer roadshows — closed door meeting with potential buyers — and deals with bankers. Instead of private meetings, Spotify held a one-day event called Investor’s Day last month, which was available to anyone to watch via a livestream. 
But Spotify’s method isn’t a simple IPO playbook for all tech startups. Spotify has a unique case due to its stock structure. Spotify has allowed its own employees and shareholders to buy and sell stock for years now. 
“Spotify is different. They’ve been around for a long time, and their shareholder base has already begun to look like that of a public company,” Drew Pascarella, lecturer of finance at Cornell SC Johnson College of Business, said in an emailed statement. “I don’t see this as the beginning of the end of investment banks as IPO underwriters; this is a one-off, unique situation.”
But while the case to stay private has been argued for tech companies struggling on the stock market, like Snapchat’s parent Snap Inc., Spotify’s decision to go public still seems welcomed and obvious next step. 
Spotify’s “listing on an exchange makes their stock liquid. It allows current owners (employees and other investors) of the stock to liquidate and get cash out of their investment,” Reena Aggarwal, professor at Georgetown’s McDonough School of Business, wrote in an email to Mashable. 
And yet, Spotify joins the stock market when other tech stocks have been struggling. Fear of regulation and other scandals have dragged down the price of Facebook and Amazon. Analysts, such as Robin Griffiths of investment firm ECU Group, have suggested tech stocks are overdue for corrections, CNBC reported. 
Ek seems quite aware of the bumpy road ahead, as he wrote in his letter: 
“I have no doubt that there will be ups and downs as we continue to innovate and establish new capabilities. Nothing ever happens in a straight line — the past ten years have certainly taught me that. My job is to ensure that we keep our foot on the pedal during the ups, so that we don’t become complacent, and that we continue to stay the course with a firm grip on the wheel during the downs.”
Indeed, music-streaming service Pandora has suffered since its stock market debut. 
The future for Spotify doesn’t completely change on Tuesday. Unlike traditional IPOs, Spotify won’t receive a massive influx of cash that could then lead to investments in new business opportunities and product features. But while Ek might not be touting the new stage, being a publicly traded company does open Spotify up to the pros and cons of having a more public presence. 
Now, Spotify will have to disclose its revenues and other statistics on a quarterly basis. That means its music-streaming competitors — Apple Music, Pandora, Deezer, iHeartRadio, SoundCloud, Amazon, Google, etc. — will have more opportunities to scrutinize. Spotify is currently the largest streaming service with 71 million subscribers and 159 million monthly active users across 61 markets. But Apple Music could soon overtake Spotify in the U.S, and Amazon and Google have been further investing in their own offerings. In fact, Tuma Basa, the curator of one of Spotify’s most popular playlists RapCaviar, recently left Spotify to join YouTube. 
That competition isn’t going anywhere, and the business they’re all in is an expensive one. Spotify is famous for exposing users’ embarrassing listening habits as well as bleeding money. In 2015, Spotify lost $194 million, and that massive loss was seen as a good thing given it wasn’t much more than their 2014 losses. Last year, Spotify reported it lost $461 million. 
Spotify’s massive costs and entire business relies on its relationships with artists and the music labels. Back in January, the U.S. Copyright Royalty Board ruled songwriters must be paid more, and services including Spotify must comply. 
In order to succeed, Spotify needs to improve its cost margins. That could include increasing the cost of its services. One other strategy on Spotify’s roadmap is working directly with independent artists, Recode reported. As Chance the Rapper proved, artists don’t need a label to be successful. But they do need a way to distribute their music and make an income. Services like SoundCloud have offered a platform to be discovered, but Spotify may be stepping in with a way to grow. 
Of course, we won’t see any of those big changes on Tuesday or in the coming weeks. We simply have another stock ticker to keep our eyes on while our ears are listening to something else. 

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