David Garrity, CEO of GVA Research joins BNN live in the studio with his insights on the day’s top tech headlines
SPOT IPO Opening Likely To Offer Discordant Movements
With today’s direct listing IPO on the NYSE, albeit one assisted by Goldman Sachs, Spotify (SPOT) will break from the traditional IPO process in which companies have sold shares first to a syndicate of underwriters who then in turn sell the shares to the public. The merit of the traditional IPO process is that a price range typically develops during the underwriting process that offers some guidance as to where the publicly traded share price will open and potentially settle. For SPOT, the company is listing its shares directly on the exchange so there is no underwriting syndicate acting to stabilize the market price.
Investors should bear in mind the following when assessing SPOT’s opening day performance:
1) the company’s last private sale valued the shares at $127.50/share, roughly a $20bn market value, or 3.2x expected 2018 revenues of $6.25bn,
2) peers such as Alphabet (GOOGL) and Netflix (NFLX) are trading, respectively, at 6.5x and 7.7x expected 2018 revenues, and
3) While SPOT issued 2018 revenue growth guidance of 20% ($6bn) to 30% ($6.5bn), the expected 2018 operating loss is $343mm (-5.5% of revenues).
With analysts providing share price targets ranging from $160 ($30bn market capitalization, 4.8x expected 2018 revenues) to $220 ($43.5bn, 7.0x), investors will find a wide range of opinion off which to price SPOT. Look for discord ahead.
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