Direct Listing: Evidence from Spotify's Case: Analysis of Spotify's Direct Listing as an Alternative to the Traditional IPO

Antonino Musumeci & Vincenzo Fondacaro

Student thesis: Master thesis


Spotify, the leading company in the music streaming business, went public on the April 3rd 2018 through an unusual method known as Direct Listing. The company has been listed on the New York Stock Exchange without the intermediation of any investment bank. The case study offers the opportunity to further enrich the literature about IPO and its consequences, as well as investigating the effects of a listing process never applied before. In particular, making use of the agency theory and of several financial models, we analysed the event from the perspective of both the incumbent owners and the external investors. In the first part of the analysis we challenged the company’s valuation. We provided a fair-value estimation based on the relative valuation approach. In particular, we adopted the multiple DEA model. We found that the Direct Listing successfully decreased the under-pricing feature. Indeed, the shares were overvalued compared to its fair-value. In the second part of the analysis, we evaluated the performance of the stocks in the aftermarket. The stock’s price rose in the days following the Direct Listing, suggesting the presence of underpricing. Coherent with previous researches, the stock’s liquidity was positively correlated with the under-pricing. Furthermore, Spotify’s liquidity outperformed other tech IPOs that happened in the same time-frame. Our research paper suggests that the Direct Listing proved to be an efficient tool to market securities. In particular, the Direct Listing allows managers to separate the financing decision from the exit strategies decisions. Thanks to thisseparation, agency costs may be lowered and incumbent owners are able to cash-out their initial effort more efficiently.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final ThesisMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages110