Spotify’s unique listing that cut out Wall Street is not a threat to bankers just yet

Here’s why Wall Street is not yet shaking in its boots over Spotify.

Spotify opened at $165.90, well above the reference price of $132. That “reference price” — provided by Morgan Stanley — was based on recent trading in the secondary market. It closed just below $150 Tuesday, its first day on the NYSE, down from its opening price but well above the reference price.

Is this a successful debut? From the company’s standpoint, a lot of insiders were able to sell at attractive prices. That’s successful. From the buyer’s perspective, if you bought at the open, that was the high print and you weren’t going to make money.

The key is what happens in the next few days: If it’s down another 10 percent, that could be an issue. Midday Wednesday it was down another 7 percent.

Is this non-initial public offering a new model for Wall Street? The company made it clear it did not want to pay high Wall Street fees for a traditional IPO. However, Spotify may be a unique case. First, it did not need to sell new shares — all the shares came from existing shareholders. Second, it was not concerned that north of 90 percent of the shares were available to trade.

Not many companies may fit these criteria. However, if you are a big unicorn, and you do not need to raise more shares, and you have people out there who have held shares for years who do not want to be locked up, then yes, this could be a model.

The issue are the fees. It’s expensive to do an IPO. It can cost anywhere from 5 to 7 percent of gross proceeds. So if Spotify floated 10 percent of its shares at $132, it would have raised $2.4 billion. Seven percent of that is $166 million. We don’t know how much Spotify paid its advisor, but it’s been reported it paid about $30 million in fees — less than one-fourth the amount under the traditional model.

So is Wall Street shaking in its boots? Not yet.

Here’s a key point: Spotify is a big company with a big brand name that partially sells itself. For many other small companies, they will still need Wall Street to do the selling.

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