The IPO Buzz: SPOT Flops

Spotify Technology S.A. (SPOT) came to town last week with all the fanfare of an old-fashioned three-ring circus. The financial press loved the deal, proclaiming it a huge success and hinting that many other unicorns were lining up for direct public offerings.

The press may have gotten it wrong. No one quoted the buyers.

When the deal left town, the cleanup crew had a lot of work to do.

Here is the story. On Tuesday, April 3rd, Spotify opened at $165.90, popped as high as $169 and then tanked. It closed its opening day at $149.01 – down 10.2 percent from its direct offering price. The difference between SPOT’s opening and closing prices meant a loss of over $3 billion in market capital. (The prospectus shows the number of outstanding shares of Spotify was 178.11 million.)

The press hung their hats on what bankers called a reference price set at $132. They called it the “offering price” and claimed the deal was a “winner” when the stock opened above the reference price. It wasn’t.

By 12:44 p.m. EDT, the stock opened for trading. That was a delay of slightly more than three hours after the 9:30 opening bell had rung at the New York Stock Exchange. This was how long it took Spotify’s insiders – the sellers – and the public – the new investors – to agree on an opening price.

The bottom line: The direct offering price is a matter of negotiation between the sellers and the buyers. If the sellers could not figure out a way for the buyers to make money, it will be difficult to get the buyers back into the casino.

Two on Tap

This brings us to this week, which has just two IPOs expecting to raise $170 million. The two are Alzheon (ALZH proposed) and Zuora (ZUO proposed).

Alzheon is a clinical-stage biopharmaceutical company developing ALZ-801, an orally administered inhibitor of beta amyloid misfolding. Its product is in a Phase III clinical trial for treating Alzheimer’s disease and other neurological disorders.

Zuora offers cloud-based software on a subscription basis. The company’s products enable any company in any industry to successfully launch, manage and transform into a subscription business.

Next Week: Two More IPOs

For the week of April 16, 2018, the IPO calendar has two initial public offerings. They expect to raise about $1.5 billion. Nevertheless, anything can happen when the SEC’s filing window opens again for business on Monday morning.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.