Source: International Finance News (ID: gjjrb777), under the tree
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Spotify, the world's largest streaming music service provider, will be listed on the New York Stock Exchange in the first week of April under the ticker symbol "SPOT". The listing method is very special: Direct Listing.
Direct listing is the latest revision of the New York Stock Exchange's special listing rules for unicorn companies. It does not issue new shares or raise funds through the listing process, and does not require underwriters. Simply register existing stocks and you can be free in the capital market. transaction.
In early February 2018, the US SEC approved a proposal by the NYSE to revise the listing process submitted in March last year, allowing the company to go public directly. Spotify will be the first company to be listed directly on the NYSE, and is likely to become the largest technology company listed in the US this year. Some market analysts predict that if Spotify's direct listing will succeed, Unicorn companies such as Airbnb and Uber will also consider public offerings in this way.
On March 15, Spotify announced that it will release its full-year financial guidance on March 26, and will be publicly listed on the NYSE from April 3. On the same day, the company also held Investor Day, which promoted the company's business and prospects on the one hand, and communicated with investors in advance on the other hand, and explained the uncertainty contained in the direct listing model to ensure its smooth landing. Exchange office.
First, high revenue growth is difficult to cover huge losses
Founded in 2006, Spotify is the undisputed leader in streaming music, with more than 150 million monthly active users worldwide. As of December 31, 2017, the number of paid subscribers reached 71 million, with an annual growth rate of 46%, which is twice the number of APP le Music users.
The Spotify prospectus shows that the company's revenue has increased year by year, with revenue of $2.37 billion in 2015, revenue of $3.6 billion in 2016, and revenue of $4.99 billion in 2017, a 39% increase from the previous year.
Despite the rapid growth in revenue, Spotify is still losing money. In 2017, the company's net loss reached $1.5 billion. The reason for the loss is the need to pay a huge amount of copyright fees to the music copyright party. As of the end of 2017, Spotify had paid a total of more than $9.76 billion in copyright fees to music copyright holders, while also facing a $1.6 billion copyright lawsuit, which is still pending in federal court in California.
Second, the pros and cons of direct listing
Before the new rules, when a company is preparing to list in the US, the company needs to hire one or more investment banks as underwriters, and negotiate with the company on the issue method, date, issue price, issue fee, etc. In 1 to 2 years, the cost is also higher. After the stock is issued, it is subscribed to early investors or institutional investors before it is available to the public. In the traditional underwriting process, the underwriters set the issue price according to the actual needs of the institutional investors for the initial public offering, and the underwriters begin to sell the shares to the public shareholders according to the issue price, and the general underwriters will lower the issue price in the process. If the company’s stock is oversubscribed, the underwriter’s fees will be higher. Direct listing allows the company's stock to be sold directly to the public. The process is simple, saving up to hundreds of millions of dollars in underwriting expenses, and preventing stock dilution and other issues, reducing the cost of listing.
Another advantage of direct listing is that it can avoid the “lock-up period†of traditional IPOs. There is no restriction on the shares held by existing shareholders of the company, and shareholders can sell all the shares at one time.
The SEC stipulates that after the traditional IPO, the original shareholders may not sell their stocks for a certain period of time to cash in the secondary market. The NYSE and Nasdaq have a “lock-up period†of six months. After 6 months, the amount of shares that shareholders can sell every three months cannot exceed 1% of the same issued shares or the largest average transaction volume within 4 weeks, and must be reported to the SEC in advance.
In addition, the traditional IPO needs to disclose the entire financial situation to the investment bank and then disclose it to the public, but the direct listing can only be announced 15 days before the official listing. The SEC also stipulates that in traditional IPOs, companies must maintain a period of silence, but direct listings are different, and company executives can publicly discuss the company before listing.
John Tuttle, head of the global public company on the New York Stock Exchange, said that for companies with sufficient capital, what they really need is liquidity. Direct listings may attract more companies that trade on the relatively loose OTC market but want to land on the NYSE or Nasdaq exchange.
For investors, direct listing means that everyone is equal. Because no matter how big the investment is, everyone is at the same starting line.
Although direct listing has many advantages, the lack of an “inquiry loop†process means that there is no traditional opening price discovery mechanism, and the issue price will be determined by the market supply and demand situation.
In the history of the United States, there are very few cases of direct listings. Previously, they only appeared on the Nasdaq Stock Exchange, and were limited to small companies that are not well-known, such as Ovascience (market value of 55 million US dollars), Nexeon MedSystems, Coronado Biosciences, Biotechnology and life sciences companies such as BioLine Rx (market value $83 million). Spotify was the first big company to choose an alternative IPO, and neither Hong Kong shares nor A shares appeared.
Third, why Spotify chooses to go directly to the market
Spotify dares to go public in this way, because of their huge brand awareness and very high private market valuation. In 2017, the company's stock in the secondary market was 12.8 million shares, with a valuation ranging from $6.3 billion to $20.9 billion. Since the beginning of this year, the company's stock has 2.8 million shares in the secondary market, with valuations ranging from $15.9 billion to $23.4 billion. While the direct listing approach has made the company's reasonable valuations confusing, it is certain that a valuation of around $22 billion gives Spotify a direct listing.
In addition, direct listing also helps Spotify handle the tough debt structure. In 2016, Spotify raised $1 billion in funds from private equity firms such as TPG and Dragoneer by issuing convertible bonds. According to the agreement signed at the time, if Spotify's initial public offering was postponed, these private companies could convert corporate bonds into stocks at a high discount. Market analysts say this is also the main reason Spotify is looking for a quick time to market. However, depending on the transaction details, if Spotify chooses to go public, it will not trigger the conversion mechanism.
In the case of a company's loss, there is still a possibility that the traditional IPO will not issue additional shares. The reason is that the founders do not want to dilute their own equity, but they need to find ways to provide stocks for current employees, former employees, early investors and others. opportunity.
According to the file that Spotify submitted to the SEC, in order to consolidate the founder's position in the company, Spotify proposed a voting certificate called “beneficiary certificatesâ€. After the voucher is assigned, the two founders will own more than 80% of the company's voting rights. As a result, the two founders who have retained the voting rights still have the power to decide on the company's execution operations. Even if the company has a serious loss, the founder can still do the company.
According to reports, Spotify will hire Morgan Stanley as a financial advisor, the listing opening price will be determined by the NYSE based on the purchase and sale orders made through the securities brokerage company, the price of the buy and sell orders on the NYSE.
Since there is no pre-recruitment of subscribers and set prices, the stock price is likely to fluctuate wildly on the first day of trading. Spotify also stated in the prospectus: "Our common stock price may be more volatile than the underlying IPO share price. And after listing on the New York Stock Exchange, the stock price may fall rapidly."
4. Why should the NYSE revise the listing rules?
According to Steven Kaplan, a professor at the University of Chicago's Booth School of Business, the number of US-listed companies has fallen by nearly 50% from 8,616 in 1997 to 4,633 in 2016. In the past ten years, for many large unicorns, the problem of public listing has outweighed the benefits, and the disadvantages outweigh the benefits, which have become less attractive.
On the NASDAQ Stock Exchange in 2014, the private company's stock exchange market was opened, allowing private companies that are in the development stage to also receive funding from institutional investors. Similar private stock exchanges include SecondMarket, AngelList, and Funders Club. WeFunder and Equidate, etc., allow private companies to finance a wider range of investors, not just traditional venture capital firms.
As trading sites such as Nasdaq provide technology and platform support for private equity transactions, many potential startups are vulnerable to low-cost financing. The capital and liquidity of the private equity market are fully able to meet the financing needs of startups.
In addition, Nasdaq has been a popular listing place for many technology companies. Apple, Google, Microsoft, Amazon, Facebook and other high-tech companies with high market capitalization are listed on NASDAQ. Since the 1980s and 1990s, the New York Stock Exchange has focused on older, more mature blue-chip stocks, making it the preferred location for companies in industries such as industry, energy, and banking. Due to its strict size and financial constraints, it has blocked emerging technology companies' IPOs on the NYSE.
The number of IPOs continues to decline, and it is difficult to attract outstanding science and technology companies to go public and other issues have attracted the attention of the NYSE.
In order to enhance competitiveness, the NYSE submitted a proposal to the SEC to amend the listing process in March 2017 to improve its listing standards. One of them is to meet a unicorn company like Spotify that seeks direct listing. In early February of this year, the NYSE’s proposal to allow companies to go public directly was approved by the SEC.
5. China's A shares should also introduce a direct listing system.
In order to seize the listing of the global unicorn company, Nasdaq is not allowed to stand out. The New York Stock Exchange and the Hong Kong Stock Exchange have revised the listing rules. The new listing rules for the unicorn company in China are also being developed. The main way to attract overseas unicorn companies back to China is ADR. The author believes that in addition to the introduction of the ADR method, it can also introduce the direct listing system of the New York Stock Exchange and Nasdaq, and then reform the corporate governance system with different rights of contract shares.
The direct listing system is suitable for companies that have high visibility, sufficient cash flow, and the need to publicly raise funds is small, and the business model is familiar to institutions and retail investors, but the old shareholders and institutional investors need liquidity.
February 12, 2018 listing of raising 603,156 yuan drinks, attending stocks had caused much controversy capital markets. The company's net profit in 2016 was 2.7 billion yuan. On June 30, 2017, there were 4.7 billion yuan in bank wealth management products. The total cash dividends of shareholders in the three years prior to listing totaled 4.5 billion yuan. It is a company with more money and no local use. In the system of bundling and public issuance in China, several projects must be compiled to raise funds. If there is a direct listing system, there is no need to issue new shares.
Ningde Times New Energy Technology, which will be reviewed soon, has a net profit of 3.09 billion yuan in 2016, a net profit of 4.29 billion yuan in 2017, an undistributed profit of 6.759 billion yuan at the end of 2017, and a bank wealth management product of 1.3 billion yuan at the end of 2017. The CSRC feedback: on the investment of short-term wealth management products. According to the prospectus disclosure, at the end of each reporting period, the balance of investment in short-term wealth management products of the company was 1,064,258,500 yuan, 1,090,000 yuan, 945,419,900 yuan, and 1,098,254,000 yuan. . . . . . . Please explain the necessity of the initial fundraising in combination with the company's existing asset and liability structure, monetary funds and short-term wealth management product investment funds, and business development-related capital expenditure requirements. The CSRC asked so much money for bank financing. What is the need for IPO to raise funds?
Another company BGI 300676 Unicorn, attending stocks in the market before July 14, 2017 there are hundreds of millions of funds to purchase financial products.
If these companies can be listed directly without the need to bundle new shares, the listing review can be greatly simplified and the listing efficiency will be higher.
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