Spotify makes dazzling debut; but falls on the second day of trading

Spotify (SPOT), on Tuesday, in its first day of trading, opened at $165.90, which translates to a valuation of around $30 billion. The stock maintained the stability for a while before trailing down towards the end and closed at a price of $149.01 on Tuesday, which equates to the valuation of about $26.5 billion. In today’s trading session, shares of the music streaming service provider further dipped 2% and closed at $145.87.

What put Spotify under the spotlight was its peculiar way of listing its shares through the direct listing method. The streaming service did not raise additional funds through new shares issuance but permitted the trade of existing shares on the NYSE. Spotify rang no bells, gave no interviews and did no roadshows. In other words, it skipped the entire party.

The company started trading very late on Tuesday due to a delay in setting its opening price. The rival of Apple Music’s direct listing, without the usual stability and liquidity provided by underwriters and fresh share issuance, had a touch-and-go effect. Spotify, which stated that its cash on hand eliminated the need for raising new funds, intends to focus on long-term goals.

Although Spotify has never earned a profit, it is a leader in the music streaming business with more than 70 million subscribers, almost double that of its competitor Apple Music.

In today’s trading session, shares of the music streaming service provider further dipped 2% and closed at $145.87

Spotify is heavily dependent on record labels which makes it difficult to generate profits. In addition to this, the advertising revenue which sustains Spotify’s popular free version is much lower compared to its subscription revenues. In other words, most of its users are on the free version but that’s not making enough money for Spotify.

It is possible for Spotify to generate a profit if it finds an appropriate business model that will reduce its dependence on other parties and put the power in its hands. This will enable new investments and growth in the music industry.

Spotify’s performance over the coming weeks will be worth watching. If the stock performs well, it could pave a similar path for upcoming IPOs. Meanwhile, Spotify along with Dropbox (DBX) seem to be providing the tech sector with some glimmer of hope during this tough time.