Music streaming service Spotify has filed for a direct listing of its shares, laying out financial data for the first time that cheered some analysts but led others to question how it could turn a profit from its growing subscriber base.
Spotify, which wants to trade as SPOT on the New York Stock Exchange is taking an unusual path to the US public markets, with a direct listing that will let investors and employees sell shares without the company raising new capital or hiring a Wall Street bank or broker to underwrite the offering.
A direct listing does not dilute ownership, as would happen with a conventional initial public offering, and saves hundreds of millions of dollars in underwriting fees. But it also frees existing owners from any lockup period restricting them from selling their shares following the listing.
Underwriters that provide price stability for new listings are not used in a direct listing, which could mean a volatile start for Spotify shares in public.
Because the company will not issue any new shares, it did not specify a listing price. Based on private transactions, it is valued at roughly $US19 billion, according to Reuters calculations.
Spotify launched in 2008 and is available in more than 60 countries, is the biggest music streaming company in the world and counts services from Apple, Amazon and Google as its main rivals.
In the filing, Spotify laid out detailed financial data for the first time, showing rising revenue and relatively steady operating costs, which analysts took as a positive.
Revenue rose 39 percent to €4.09bn in 2017, from €2.95bn a year earlier. Its operating loss widened to €378m in 2017 from €349m.
Its net loss ballooned 129 percent in 2017, driven mostly by financing costs related to a 2016 deal in which Sweden-based Spotify raised $1 billion in debt that would convert to shares upon an initial public offering.
"The revenue continues to grow but in particular their costs are growing slower than revenue, which is exactly what you expect in a business like this," said Jay Ritter, an expert in initial public offerings and professor at the University of Florida.
Spotify compared its aspirations to the reach of Facebook (FB.O) and YouTube. "We believe the universality of music gives us the opportunity to reach many of the over 3.6 billion internet users globally," it said.
With 71 million premium subscribers globally, Spotify has about twice as many paying customers as music streaming runner up Apple, with 36 million. Including those who listen to advertising-supported streams, Spotify has about 159 million monthly average users.
Spotify's premium subscription costs $9.99 a month, but it said it saw great potential in its ad-supported service, which Apple does not offer.
"With our ad-supported service, we believe there is a large opportunity to grow users and gain market share from traditional terrestrial radio," Spotify said.
The net proportion of subscribers who left Spotify's paid-for service, or churn, fell to 5.1 percent of paying customers at the end of 2017, from 6.9 percent at the start of 2016, the company said.