Spotify has plans to go public before the end of the year, according to a report from the Wall Street Journal. And in a twist, the music streaming service may not go down the traditional IPO route. Instead, Spotify is considering a direct listing without raising any new capital.
This would mean that Spotify may not have to deal with the drama of a traditional IPO day, and it could save of fees it would otherwise have to pay to underwriters. Spotify could then always go back to the markets at a later point to issue new shares if and when it needed to raise new capital.
Spotify has been on a path to a public offering ever since it borrowed $1 billion in convertible debt a year ago. The terms of that loan reportedly stipulate that the interest rate raises by 1 percent every six months until the company goes public, making a delayed public offering a lot more expensive. Spotify might have to renegotiate the terms of the debt offering to make a direct listing work, the Journal reported Thursday.
Going public isn’t without risk for Spotify. The company is the industry leader in the streaming music space with more than 50 million paying subscribers. However, that leadership position comes at a huge cost, with Spotify forking over most of its revenue to music rights holders, with an uncertain path to profitability.
Adding to this uncertainty was the fact that Spotify had been operating without long-term licensing agreements with the three major labels for over a year. Earlier this week, the company announced a new deal with the Universal Music Group, paving the way for similar agreements with Sony Music and the Warner Music Group.