Fewer Spotify Shares Sold Than Expected in Unusual Listing

(Bloomberg) -- Fewer Spotify Technology SA holders sold shares in the company's direct listing Tuesday than expected by advisers, potentially contributing to an initial shortage that drove the price up, people familiar with the matter said.

Spotify's stock opened at $165.90 at 12:43 p.m. in New York and climbed as high as $169 a few minutes later. Just 5.6 million shares changed hands at the opening price, or 5 percent of the total number potentially available to trade, according to data compiled by Bloomberg. About 30.5 million shares were traded before the stock closed 10 percent below its opening price at $149.01.

The slide continued on Wednesday, with shares falling to $144.22, giving the company a market value of $26 billion. That's in line with where advisers expected the shares to trade, people familiar with the matter, who asked not to be identified because the information wasn't public, said before the listing. Volume slipped to 11 percent of the equity float.

If there weren't enough shares to meet demand at the time of the listing, the company's advisers were concerned there would be a liquidity squeeze, causing a run up in the shares to an unsustainable valuation, the people said before the shares traded.

The trading volume fell well short of the IPOs of five other technology companies that went public with market valuations of $10 billion to $40 billion. While the trading dynamics for Spotify were expected to be different, its second day as a public company also saw a much lower percentage of shares change hands than happened with Twitter Inc., Snap Inc. or Dropbox Inc.

Spotify's direct listing, a move rarely taken by a large, established company, went mostly according to plan: The stock trading efficiently with relatively little volatility.

Getting enough shareholders to sell their shares was an imperative and advisers spent more than six weeks talking to existing investors to gauge their interest in selling, said the people.

“Spotify's early stock valuation may be driven by limited supply amid a preponderance of strategic investors and affiliate shareholders,” Jitendra Waral and Sean Handrahan of Bloomberg Intelligence wrote in a note.

Spotify's stock got off the ground with the help of advisers Goldman Sachs Group Inc., Morgan Stanley and Allen & Co. Morgan Stanley advised designated market maker Citadel Securities LLC on the opening valuation.

Morgan Stanley's trading desk saw most of the volume on Day 1. It processed 18.5 million of the shares that changed hands. Goldman Sachs ranked No. 2 with 2.3 million shares.

Spotify's market debut delivered a windfall for music companies that acquired stakes several years ago. Sony Corp. will record a gain of almost $1 billion based on the 17 percent of its holdings that it sold, according to a regulatory filing. That's about 1.7 million shares, according to data compiled by Bloomberg.

--With assistance from Lucas Shaw

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha

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