The Spotify IPO

When Spotify listed its shares on the New York Stock Exchange this February, it did so with a rare, daring, direct listing, which cut out much of the traditional banking infrastructure that powers most IPOs. And it worked!

Why did the Swedish music streaming service do it that way? As Spotify founder and CEO Daniel Ek explained tonight at Code Conference in Rancho Palos Verdes, Calif., there were three main reasons:

Spotify is worth $25 billion as of Wednesday, and that means that its founders now have real money — not just some on-paper-only wealth.

CEO Daniel Ek, who owns just over 9 percent of the music streaming company, is now sitting on about $2.3 billion of Spotify stock at its current price. His lower-profile co-founder, Martin Lorentzon, has about $3.1 billion worth of shares in the company.

Spotify’s public offering is not only notable because of its uncommon choice to list its shares directly on the stock market. The stock, which began trading today, also ranks among the most valuable internet companies to list in the U.S.

Its closing market value today was about $27 billion, according to Dealogic, putting it ahead of Twitter and Groupon, but behind Alibaba, Facebook, Snap and Google following their first trading days. That’s despite a stock price decline of about 11 percent today.

If you were expecting Spotify stock to fluctuate wildly on its first day of trading as it tried to reinvent how companies go public, you were wrong.

Spotify had a fairly unremarkable public debut as the market closed Tuesday, which is a win for the direct listing, given the doomsday scenarios imagined by skeptics of the music company’s plans. Advisers to Spotify were hoping to have enough shareholders willing to buy and sell to make sure that the actual share price didn’t spike and crash rapidly — a real worry, considering Spotify’s novel plan.

Spotify is 12 years old and has never been profitable.

Last year, it posted an operating loss of $461 million.

Tuesday will be an abnormal day in the history of the IPO.

“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,” Spotify’s CEO, Daniel Ek, said on Monday in a blog post titled, “Tomorrow.”

When Spotify goes public Tuesday, the spotlight will shine on 35-year-old CEO Daniel Ek, who has built a $20 billion company and helped revive the music industry along the way.

But if Spotify’s unusual “direct listing” offering — done without the traditional assistance from investment banks — is successful, credit will go to a Spotify executive 30 years Ek’s senior, who doesn’t want any attention: Barry McCarthy, the company’s chief financial officer, who is acknowledged as the architect of the unorthodox and, to some, controversial public offering.

When startups prepare to sell their shares to the public for the first time, they tend to follow a tightly controlled and heavily scripted playbook that makes bankers, customers and, generally, CEOs happy.

Spotify, for better or worse, is trying something truly innovative.

Streaming music company Spotify filed to go public today. The uncommon IPO-less IPO paperwork laid bare reams of financial data, from the amount of money the company makes from each user to how much its shareholders stand to gain.

Here’s some of that information in chart form:

Spotify’s coming IPO is validation for CEO Daniel Ek, who has built a giant music streaming business.

And on paper, the IPO* will make Ek and his co-founder Martin Lorentzon billionaires. Ek owns 9.3 percent of his company and Lorentzon owns 12.4 percent. (An earlier version of this story incorrectly reported the size of Ek’s and Lorentzon’s ownership stakes.)

Spotify solved a messy debt problem posed by two of its shareholders in recent months — a deal first reported by Recode in January but that came into sharper focus on Wednesday when Spotify officially filed its paperwork to go public.

Two Spotify shareholders, TPG and Dragoneer, held what’s known as a convertible debt note that entitled them to more and more shares in the company if Spotify kept delaying its public listing. Working closely together, the pair late last year was able to convert that debt into equity and then sell their shares to Tencent, the Chinese internet giant eager to gain more of a foothold in the music company.

The digital music business is famous for incinerating money. But Spotify has always insisted that it was going to be different: Trust us, the company told investors — once we get big enough, things will change.

Now Spotify is big and it’s going public — and it’s still burning an enormous amount cash. The company posted an operating loss of $461 million on revenue of nearly $5 billion last year, according to filings posted today with the SEC.